On the robustness of the Arrow-Pratt risk aversion measure |
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| Authors: | J.G. Kallberg W.T. Ziemba |
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| Affiliation: | New York University, New York, NY 10003, USA;University of British Columbia, Vancouver, BC, Canada |
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| Abstract: | For portfolio problems with joint normally distributed asset returns, the risk aversion measure R = -w0(Eu″(w)/Eu′(w)), where w0 is initial wealth can be used to characterize optimality. Comparisons between the global measure R and local measures based on RA = -u″(w)/u′(w) are explored. Simulations for several utility function classes are described. |
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