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Kinked Utility

An investor might want to maintain a minimum standard of living, or need to maintain a wealth so as not to breach an agreement on a loan. A kinked utility function describes this preference, where it changes abruptly at a specified wealth or return level. This utility function penalizes solutions that breach a given threshold. It is defined by a log-wealth function above the threshold and by a steeper linear function below the threshold return.

Category:Understanding the Software -> Optimization