scholarly journals An Optimal Compensation Agency Model for Sustainability under the Risk Aversion Utility Perspective

2021 ◽  
Vol 14 (3) ◽  
pp. 106
Author(s):  
Tyrone T. Lin ◽  
Tsai-Ling Liu
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Compensation System ◽  
Objective Functions ◽  
Agency Model ◽  
Proposed Model ◽  
The Face ◽  
Revenue Function ◽  
Hara Utility ◽  
Negative Exponential

This paper explores how to construct a fair and optimal compensation system between the principal and the agent in the face of financial compensation agency problems during a limited period in relation to the concept of sustainability. In the construction of the principal’s compensation system, the agent’s degree of operational financial effort will affect the overall revenue function for reaching sustainability. Both the principal and the agent have a maximum expected utility in the negative exponential pattern of the general hyperbolic absolute risk aversion (HARA) utility function that satisfies their respective objective functions. The proposed model and numerical example analysis results prove that the compensation system for sustainability can provide a fair and optimal financial system, from a sustainability perspective. The main contribution of this study is the construction and development of an optimal compensation agency model for risk management, which is derived by considering the effect of risk aversion utility on revenue. The proposed model can provide a fair and feasible approach within the issue of compensation, from the viewpoint of sustainability, for an optimal compensation agency problem.

scholarly journals Closed-Form Optimal Strategies of Continuous-Time Options with Stochastic Differential Equations

Complexity ◽  
2017 ◽  
Vol 2017 ◽  
pp. 1-11
Author(s):  
Wei Yan
Keyword(s):  
Differential Equations ◽  
Risk Aversion ◽  
Utility Function ◽  
Stochastic Differential Equations ◽  
Continuous Time ◽  
Diffusion Processes ◽  
Absolute Risk ◽  
Optimal Strategies ◽  
Optimal Investment ◽  
Hara Utility

A continuous-time portfolio selection with options based on risk aversion utility function in financial market is studied. The different price between sale and purchase of options is introduced in this paper. The optimal investment-consumption problem is formulated as a continuous-time mathematical model with stochastic differential equations. The prices processes follow jump-diffusion processes (Weiner process and Poisson process). Then the corresponding Hamilton-Jacobi-Bellman (HJB) equation of the problem is represented and its solution is obtained in different conditions. The above results are applied to a special case under a Hyperbolic Absolute Risk Aversion (HARA) utility function. The optimal investment-consumption strategies about HARA utility function are also derived. Finally, an example and some discussions illustrating these results are also presented.

Risk Aversion in a Dynamic Asset Allocation Experiment

2018 ◽  
Vol 54 (5) ◽  
pp. 2209-2232 ◽  
Author(s):  
Isabelle Brocas ◽  
Juan D. Carrillo ◽  
Aleksandar Giga ◽  
Fernando Zapatero
Keyword(s):  
Risk Aversion ◽  
Asset Allocation ◽  
Optimal Allocation ◽  
Absolute Risk ◽  
Risk Attitudes ◽  
Dynamic Asset Allocation ◽  
Absolute Risk Aversion ◽  
Increased Risk ◽  
Hara Utility ◽  
The Individual

We conduct a controlled laboratory experiment in the spirit of Merton (1971), in which subjects dynamically choose their portfolio allocation between a risk-free and risky asset. Using the optimal allocation of an investor with hyperbolic absolute risk aversion (HARA) utility, we fit the experimental choices to characterize the risk profile of our participants. Despite substantial heterogeneity, decreasing absolute risk aversion and increasing relative risk aversion are the predominant types. We also find some evidence of increased risk taking after a gain. Finally, the session level risk attitudes show a different profile than the individual descriptions of risk attitudes.

Constant Absolute Risk Aversion, Bankruptcy, and Wealth-Dependent Decisions

1980 ◽  
Vol 53 (3) ◽  
pp. 285 ◽  
Author(s):  
Steven A. Lippman ◽  
John J. McCall ◽  
Wayne L. Winston
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Absolute Risk Aversion ◽  
Constant Absolute Risk Aversion

On the relationship between absolute prudence and absolute risk aversion

2006 ◽  
Vol 29 (2) ◽  
pp. 155-160 ◽  
Author(s):  
Mario A. Maggi ◽  
Umberto Magnani ◽  
Mario Menegatti
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Absolute Risk Aversion ◽  
The Relationship

A bi-level mathematical model for logistic management considering the evolutionary game with environmental feedbacks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Peiman Ghasemi ◽  
Fariba Goodarzian ◽  
Angappa Gunasekaran ◽  
Ajith Abraham
Keyword(s):  
Mathematical Model ◽  
Lagrangian Relaxation ◽  
Evolutionary Games ◽  
Relaxation Method ◽  
Objective Functions ◽  
Content Type ◽  
Medical Centers ◽  
Location Routing ◽  
Proposed Model

PurposeThis paper proposed a bi-level mathematical model for location, routing and allocation of medical centers to distribution depots during the COVID-19 pandemic outbreak. The developed model has two players including interdictor (COVID-19) and fortifier (government). Accordingly, the aim of the first player (COVID-19) is to maximize system costs and causing further damage to the system. The goal of the second player (government) is to minimize the costs of location, routing and allocation due to budget limitations.Design/methodology/approachThe approach of evolutionary games with environmental feedbacks was used to develop the proposed model. Moreover, the game continues until the desired demand is satisfied. The Lagrangian relaxation method was applied to solve the proposed model.FindingsEmpirical results illustrate that with increasing demand, the values of the objective functions of the interdictor and fortifier models have increased. Also, with the raising fixed cost of the established depot, the values of the objective functions of the interdictor and fortifier models have raised. In this regard, the number of established depots in the second scenario (COVID-19 wave) is more than the first scenario (normal COVID-19 conditions).Research limitations/implicationsThe results of the current research can be useful for hospitals, governments, Disaster Relief Organization, Red Crescent, the Ministry of Health, etc. One of the limitations of the research is the lack of access to accurate information about transportation costs. Moreover, in this study, only the information of drivers and experts about transportation costs has been considered. In order to implement the presented solution approach for the real case study, high RAM and CPU hardware facilities and software facilities are required, which are the limitations of the proposed paper.Originality/valueThe main contributions of the current research are considering evolutionary games with environmental feedbacks during the COVID-19 pandemic outbreak and location, routing and allocation of the medical centers to the distribution depots during the COVID-19 outbreak. A real case study is illustrated, where the Lagrangian relaxation method is employed to solve the problem.

DE FINETTI ON RISK AVERSION

2009 ◽  
Vol 25 (2) ◽  
pp. 153-159
Author(s):  
Joseph B. Kadane ◽  
Gaia Bellone
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Risk Premia ◽  
Absolute Risk Aversion ◽  
Kenneth Arrow ◽  
De Finetti ◽  
Constant Absolute Risk Aversion ◽  
Special Case

According to Mark Rubinstein (2006) ‘In 1952, anticipating Kenneth Arrow and John Pratt by over a decade, he [de Finetti] formulated the notion of absolute risk aversion, used it in connection with risk premia for small bets, and discussed the special case of constant absolute risk aversion.’ The purpose of this note is to ascertain the extent to which this is true, and at the same time, to correct certain minor errors that appear in de Finetti's work.

Do Time Preferences Matter in Intertemporal Consumption and Portfolio Decisions?

2019 ◽  
Vol 19 (2) ◽  
Author(s):  
Shou Chen ◽  
Shengpeng Xiang ◽  
Hongbo He
Keyword(s):  
Absolute Risk ◽  
Hyperbolic Discounting ◽  
Time Preferences ◽  
Hjb Equations ◽  
Portfolio Decisions ◽  
Special Cases ◽  
Intertemporal Consumption ◽  
Hamilton Jacobi Bellman ◽  
Hara Utility ◽  
Exponential Discounting

Abstract We study the intertemporal consumption and portfolio rules in the model with the general hyperbolic absolute risk aversion (HARA) utility. The equivalent approximation approach is employed to obtain the Hamilton-Jacobi-Bellman (HJB) equations, and a remarkable property is shown: portfolio rules are independent of the discount function. Moreover, both the consumption and portfolio rates are non-increasing functions of wealth. Particularly illustrative cases examined in detail are the models with the most adopted discount functions, including exponential discounting and hyperbolic discounting. Explicit solutions for intertemporal decisions are found for these special cases, revealing that individual’s time preferences affect the consumption rules only. Moreover, the time-consistent consumption rate under hyperbolic discounting is larger than its counterpart under exponential discounting.

Fractional Degree Stochastic Dominance

2020 ◽  
Vol 66 (10) ◽  
pp. 4630-4647 ◽  
Author(s):  
Rachel J. Huang ◽  
Larry Y. Tzeng ◽  
Lin Zhao
Keyword(s):  
Lower Bound ◽  
Risk Aversion ◽  
Stochastic Dominance ◽  
Absolute Risk ◽  
Comparative Statics ◽  
Risk Averse ◽  
Absolute Risk Aversion ◽  
Risk Apportionment ◽  
Lottery Choices ◽  
Increase In Risk

We develop a continuum of stochastic dominance rules for expected utility maximizers. The new rules encompass the traditional integer-degree stochastic dominance; between adjacent integer degrees, they formulate the consensus of individuals whose absolute risk aversion at the corresponding integer degree has a negative lower bound. By extending the concept of “uniform risk aversion” previously proposed in the literature to high-order risk preferences, we interpret the fractionalized degree parameter as a benchmark individual relative to whom all considered individuals are uniformly no less risk averse in the lottery choices. The equivalent distribution conditions for the new rules are provided, and the fractional degree “increase in risk” is defined. We generalize the previously defined notion of “risk apportionment” and demonstrate its usefulness in characterizing comparative statics of risk changes in fractional degrees. This paper was accepted by David Simchi-Levi, decision analysis.

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