GENERAL EQUILIBRIUM WITH CONSTANT RELATIVE RISK AVERSION AND VASICEK INTEREST RATES

This article introduces a simplified measure of investor risk aversion. The singleitem question combines elements from revealed preference and propensity measurement techniques in a way that matches traditional constant relative risk-aversion estimation procedures. Based on survey data from 500 investors living in the United States, scores from the proposed measure were found to correlate with other measures of risk aversion, as well as with indicators of risk-taking. A validity test showed that answers to the proposed measure were statistically associated with equity and cash ownership holdings in respondent portfolios. The simplicity and intuitive nature of the proposed measure and the alignment of question response categories to estimates of constant relative risk aversion make this a potentially valuable addition to the toolkit of researchers, financial educators, investors and those who provide advice to investors. JEL: C83, D10, D11, D14, D19, D81

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Partnerships of Bidders with Constant Relative Risk Aversions

Mathematical Problems in Engineering ◽

10.1155/2020/3925835 ◽

2020 ◽

Vol 2020 ◽

pp. 1-7

Author(s):

Pingping Zhao ◽

Kaili Xiang ◽

Peimin Chen

Keyword(s):

Relative Risk ◽

Risk Aversion ◽

Relative Risk Aversion ◽

Unique Equilibrium ◽

Risk Neutral ◽

Bid Price ◽

Risk Aversion Coefficient ◽

Constant Relative Risk Aversion ◽

The Difference

In this paper, we study a dynamic auction for allocating a single indivisible project while different participants have different bid values for the project. When the price rises continuously, the bidders can retreat the auction and obtain the compensation by the difference between the price at retreating time and the previous bid price. The final successful bidder achieves the project and pays compensations to others. We show that the auction of bidders with constant relative risk aversion (CRRA) has a unique equilibrium. While the relative risk aversion coefficient approaches to zero, the equilibrium with CRRA bidders would approach to the equilibrium with risk-neutral bidders.

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The terminal real wealth optimization problem with index bonds: equivalence of real and nominal portfolio choices for the constant relative risk aversion utility

IMA Journal of Management Mathematics ◽

10.1093/imaman/dpq019 ◽

2010 ◽

Vol 23 (1) ◽

pp. 29-39 ◽

Cited By ~ 1

Author(s):

A. Zhang

Keyword(s):

Relative Risk ◽

Risk Aversion ◽

Optimization Problem ◽

Relative Risk Aversion ◽

Portfolio Choices ◽

Constant Relative Risk Aversion ◽

Real Wealth

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The Impact of Risk Aversion on the Cost of the Contract When the Risk-Averse Agent Has a Constant Relative Risk Aversion Utility Function

SSRN Electronic Journal ◽

10.2139/ssrn.1462270 ◽

2009 ◽

Author(s):

Varda Lewinstein Yaari

Keyword(s):

Relative Risk ◽

Risk Aversion ◽

Utility Function ◽

Risk Averse ◽

Relative Risk Aversion ◽

Constant Relative Risk Aversion ◽

The Cost ◽

The Impact

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The Decision to Buy or Sell Insurance under Constant Relative Risk Aversion

The Geneva Papers on Risk and Insurance Issues and Practice ◽

10.1057/gpp.1987.3 ◽

1987 ◽

Vol 12 (1) ◽

pp. 34-36 ◽

Cited By ~ 2

Author(s):

George G Szpiro

Keyword(s):

Relative Risk ◽

Risk Aversion ◽

Relative Risk Aversion ◽

Constant Relative Risk Aversion

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Optimal Dynamic Portfolio Risk with First-Order and Second-Order Predictability

Contributions in Theoretical Economics ◽

10.2202/1534-5971.1070 ◽

2004 ◽

Vol 4 (1) ◽

Cited By ~ 5

Author(s):

Christian Gollier

Keyword(s):

Relative Risk ◽

Risk Aversion ◽

Interest Rates ◽

Stock Returns ◽

Bayesian Learning ◽

Absolute Risk ◽

Second Order ◽

Relative Risk Aversion ◽

Portfolio Risk ◽

First Order

We consider a two-period portfolio problem with predictable assets returns. First-order (second-order) predictability means that an increase in the first period returns yields a first-order (second-order) stochastically dominated shift in the distribution of the second period state prices. Mean reversion in stock returns, Bayesian learning, stochastic volatility and stochastic interest rates (bond portfolios) belong to one of these two types of predictability. We first show that a first-order stochastically dominated shift in the state price density reduces the marginal value of wealth if and only if relative risk aversion is uniformly larger than unity. This implies that first-order predictability generates a positive hedging demand for portfolio risk if this condition is met. A similar result is obtained with second-order predictability under the condition that absolute prudence be uniformly smaller than twice the absolute risk aversion. When relative risk aversion is constant, these two conditions are equivalent. We also examine the effect of exogenous predictability, i.e., when the information about the future opportunity set is conveyed by signals not contained in past asset prices.

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