Student Query: Hello Dr. Garven, I had a quick question regarding the upcoming exam. Will questions only be pulled from information pertaining to problem sets 3 & 4? Or will there be questions about the math and stat review portion as well?
Dr. Garven’s Response: Students will find the study guide to be very helpful in preparing for tomorrow’s midterm exam in Finance 4335. The exam covers topics from the January 31 and February 9 assigned readings, the four-part Decision-Making under Risk and Uncertainty lecture series (see item 5 on the lecture notes page), Problem Set 3 and Problem Set 4, and the Risk Aversion and Stochastic Dominance class problems. I also recommend reviewing the various PDFs linked from the Problem Set Solutions page.
Math and stat principles also play important roles in the theory of risk aversion (e.g., the math behind the Arrow-Pratt framework helps explain differences in the degree to which decision-makers are risk averse), and the application of Taylor series math to expected utility indicates that variance is an inadequate risk measure if risks are skewed or fat-tailed.