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Log-sum-exp Function
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In a business context, how does the derivative of the log-sum-exp function relate to the exponential function in terms of optimizing a portfolio's expected return?

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A

It provides a gradient that indicates the direction of increasing returns

B

It simplifies the computation of returns to a linear function

C

It eliminates the need for variance in return calculations

D

It shows that returns can only decrease with increasing risk

Understanding the Answer

Let's break down why this is correct

The derivative of log-sum-exp gives a weighted average of exponentials. Other options are incorrect because Some think the function makes returns linear; The derivative does not remove variance.

Key Concepts

exponential function
derivative of log-sum-exp
Topic

Log-sum-exp Function

Difficulty

medium level question

Cognitive Level

understand

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Definition
Definition

The log-sum-exp function is a convex and differentiable approximation to the max function, commonly used in optimization and machine learning algorithms. It provides a smooth representation of the maximum value among a set of numbers.

Topic Definition

The log-sum-exp function is a convex and differentiable approximation to the max function, commonly used in optimization and machine learning algorithms. It provides a smooth representation of the maximum value among a set of numbers.

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