Utility functions and portfolio selection problem

This paper deals with utility functions and their application in stochastic programming. In section 1, classification of utility functions is based on switching between gambles due to changes in wealth with a special focus on zero-switch and one-switch utility functions. All gambles are essentially assumed additive. The aim of this paper is also to compare the advantages of using one-switch utility functions and piecewise linear utility functions. In the second section, stability of optimal solution in portfolio optimalization problem in dependence on the choice of utility function is analyzed.