Notes/Questions on the CAPM.

In skimming Jacobs notes on 2 fund seperation, I noticed that HARA only leads to 2 fund sep if all investors have the same power (thus the same risk aversion?). Is that true (Cass and Stiglitz)? Still dont see any use for Options in a static CAPM. - Nish



With regard to the first question Nish, the power in the marginal utility for HARA class is not exactly the risk aversion. HARA includes utility functions with non-constant risk aversion. See Ingersoll p.146 for a statement of sufficient conditions on marginal utility for monetary two-fund separation.