Mean of two exponentials versus exponential of mean
Question
For real numbers and , prove that .
Short answer
The difference is a perfect square. With , , the left minus the right is , with equality iff . This is AM-GM, or equivalently convexity of (Jensen).
Adapted from Joshi, Denson & Downes, Quant Job Interview Questions and Answers, Q6.5, p.190; question and answer rewritten by SelfMadeQuant.com.
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Open the worked solutionLessons behind this question
- Duration and Convexity: Measuring and Managing Interest Rate Sensitivity
- Jensen's Inequality and Convexity
- The Chain Rule
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