GBM: Let Y be a normal N(0, 1) function, then the process is continuous, and is marginally distributed as a normal N(0, t). Is Xt a Brownian motion? Explain. 4 GBM: Let be two independent Brownian...

GBM: Let Y be a normal N(0, 1) function, then the process

is continuous, and is marginally distributed as a normal N(0, t). Is X_t
a Brownian motion? Explain.

4 GBM: Let

be two independent Brownian motions, and λ is a constant such that

Then the process

is continuous and has marginal distributions N(0, t). Is the process X_t
a GBM? Explain.

1) If A= 0.50, would/should one hold the risk-free asset or the risky asset?

2) To be indifferent between risk-free and risky assets, what level of risk aversion is to be expected?

3) If one is more risk-averse, will U(r) be higher or lower?