Comparative Ross risk aversion in the presence of mean dependent risks |
| |
| Institution: | 1. Canada Research Chair in Risk Management, HEC Montreal, 3000, Cote-Ste-Catherine, room 4454, Montreal (QC), Canada, H3T 2A7;2. Department of Finance and Insurance, Lingnan University, Hong Kong;1. School of Economics, UNSW Australia, Sydney, NSW 2052, Australia;2. Business Intelligence and Smart Services Institute, Maastricht University, Maastricht, The Netherlands;1. Department of Economics, University of Rochester, Rochester, NY 14627, USA;2. Department of Economics, Vanderbilt University, Nashville, TN 37235, USA;3. College of Administrative Sciences and Economics, Koç University, Sar?yer, Istanbul, 34450, Turkey |
| |
| Abstract: | This paper studies comparative risk aversion between risk averse agents in the presence of a background risk. Our contribution differs from most of the literature in two respects. First, background risk does not need to be additive or multiplicative. Second, the two risks are not necessarily mean independent, and may be conditional expectation increasing or decreasing. We show that our order of cross Ross risk aversion is equivalent to the order of partial risk premium, while our index of decreasing cross Ross risk aversion is equivalent to decreasing partial risk premium. These results generalize the comparative risk aversion model developed by Ross for mean independent risks. Our theoretical results are related to utility functions having the n-switch independence property. |
| |
| Keywords: | Comparative cross Ross risk aversion Dependent background risk Partial risk premium Decreasing cross Ross risk aversion |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
