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Effects of background risks on cautiousness with an application to a portfolio choice problem |
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| Authors: | Chiaki Hara James Huang |
| Affiliation: | a Institute of Economic Research, Kyoto University, Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501, Japan b Department of Accounting and Management, Lancaster University Management School, United Kingdom c MEDS, Kellogg School of Management, Northwestern University, United States |
| Abstract: | We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance. |
| Keywords: | D51 D58 D81 G11 G12 G13 |
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