In this paper we have devised an alternative methodological approach for quantifying utility in terms of expected information content of the decisionmaker's choice set. We have proposed an extension to the concept of utility by incorporating extrinsic utility; which we have defined as the utility derived from the element of choice afforded to the decision-maker by the availability of an object within his or her object set. We have subsequently applied this extended utility concept to the case of investor utility derived from a structured, financial product - an custom-made investment portfolio incorporating an endogenous capital-guarantee through inclusion of cash as a risk-free asset, based on the Black-Scholes derivative-pricing formulation. We have also provided instances of potential application of information and coding theory in the realms of financial decision-making with such structured portfolios, in terms of transmission of product information.
Comments: 18 pages
[v1] 6 Mar 2010
Unique-IP document downloads: 87 times
Add your own feedback and questions here:
You are equally welcome to be positive or negative about any paper but please be polite. If you are being critical you must mention at least one specific error, otherwise your comment will be deleted as unhelpful.