Hi members,

I want to differentiate w.r.t.$\sigma^2$ the following equation.

$u'(Y)+\frac{u''(Y)}{2}(\sigma^2 + \mu^2) = 0$

where we can consider $\mu$(reward) as an implicit function of $\sigma^2$(risk) of small bets

$u'(Y)\frac{du}{d\sigma^2}+\frac{u''(Y)}{2}+\mu u''(Y)\frac{du}{d\sigma^2}=0$

Hence,

$u'(\sigma^2)=\frac{u''(Y)}{2(u'(Y)+\mu u''(Y)}$

But answer given in the PDF downloaded from internet is $u'(\sigma^2)=\frac{u''(Y)}{2(u'(Y)+\mu(\sigma^2)u ''(Y)}$

Which answer is correct?

What does 1st and 2nd derivative of Utility function imply?