scholarly journals Short‐term investments and indices of risk

2020 ◽  
Vol 15 (3) ◽  
pp. 891-921
Author(s):  
Yuval Heller ◽  
Amnon Schreiber
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Risk Index ◽  
Decision Makers ◽  
Decision Problems ◽  
Risk Averse ◽  
Short Term ◽  
Risky Assets ◽  
Absolute Risk Aversion ◽  
Constant Absolute Risk Aversion

We study various decision problems regarding short‐term investments in risky assets whose returns evolve continuously in time. We show that in each problem, all risk‐averse decision makers have the same (problem‐dependent) ranking over short‐term risky assets. Moreover, in each problem, the ranking is represented by the same risk index as in the case of constant absolute risk aversion utility agents and normally distributed risky assets.

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

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.

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.

scholarly journals Are Invisible Hands Good Hands in Health Care Markets? Extension

2017 ◽  
Vol 17 (1) ◽  
Author(s):  
Hao Wang
Keyword(s):  
Health Care ◽  
Health Insurance ◽  
Risk Aversion ◽  
Social Welfare ◽  
Absolute Risk ◽  
Health Care Markets ◽  
Risk Averse ◽  
Absolute Risk Aversion ◽  
Insurance Policies ◽  
Equilibrium Level

AbstractA previous study finds that increased competition in health care markets improves social welfare, although consumers use “too much” health care when they have health insurance. The analysis assumes that consumers have a constant Arrow-Pratt coefficient of absolute risk aversion. This note shows that this finding can be extended to the case where consumers are simply risk averse. Furthermore, if insurers offered insurance policies with slightly lower usage prices than the equilibrium level, social welfare would be improved.

scholarly journals A Theory of Rational Demand for Index Insurance

2016 ◽  
Vol 8 (1) ◽  
pp. 283-306 ◽  
Author(s):  
Daniel J. Clarke
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Upper Bounds ◽  
Decision Makers ◽  
Index Insurance ◽  
Risk Averse ◽  
Basis Risk ◽  
Low Level ◽  
Simple Ratio ◽  
Rational Demand

Rational demand for index insurance products is shown to be fundamentally different to that for indemnity insurance products due to the presence of basis risk. In particular, optimal demand is zero for infinitely risk-averse individuals, and is nonmonotonic in risk aversion, wealth, and price. For a given belief, upper bounds are derived for the optimal demand from risk-averse and decreasing absolute risk-averse decision makers. A simple ratio for monitoring basis risk is presented and applied to explain the low level of demand for consumer hedging instruments as a rational response to deadweight costs and basis risk. (JEL D14, D81, G13, G22, Q14)

scholarly journals AN ECONOMIC RISK ANALYSIS OF WEED-SUPPRESSIVE RICE CULTIVARS IN CONVENTIONAL RICE PRODUCTION

2018 ◽  
Vol 50 (4) ◽  
pp. 478-502 ◽  
Author(s):  
K. BRADLEY WATKINS ◽  
DAVID R. GEALY ◽  
MERLE M. ANDERS ◽  
RANJITSINH U. MANE
Keyword(s):  
Risk Analysis ◽  
Risk Aversion ◽  
Absolute Risk ◽  
Rice Production ◽  
Risk Averse ◽  
Rice Cultivars ◽  
Economic Risk ◽  
Absolute Risk Aversion ◽  
Certainty Equivalents

AbstractWeed-suppressive rice cultivars have the potential to reduce heavy reliance on synthetic herbicides in rice production. However, the economics of using weed-suppressive rice cultivars in conventional rice systems have not been fully evaluated. This study uses simulation and stochastic efficiency with respect to a function to rank weed-suppressive and weed-nonsuppressive rice cultivars under alternative herbicide intensity levels based on their certainty equivalents mapped across increasing levels of absolute risk aversion. The results indicate risk-averse rice producers would prefer to grow weed-suppressive cultivars using less herbicide inputs than what would be used to grow weed-nonsuppressive rice cultivars.

Portfolio Choice

2017 ◽  
Author(s):  
Kerry E. Back
Keyword(s):  
Risk Aversion ◽  
Portfolio Choice ◽  
Choice Model ◽  
Absolute Risk ◽  
Risk Tolerance ◽  
Absolute Risk Aversion ◽  
Initial Wealth ◽  
Optimal Investments ◽  
Mean Variance ◽  
Constant Absolute Risk Aversion

The portfolio choice model is introduced, and the first‐order condition is derived. Properties of the demand for a single risky asset are derived from second‐order risk aversion and decreasing absolute risk aversion. Optimal investments are independent of initial wealth for investors with constant absolute risk aversion. Optimal investments are affine functions of initial wealth for investors iwth linear risk tolerance. The optimal portfolio for an investor with constant absolute risk aversion is derived when asset returns are normally distributed. Investors with quadratic utility have mean‐variance preferences, and investors have mean‐variance preferences when returns are elliptically distributed.

scholarly journals Long-Run Savings and Investment Strategy Optimization

2014 ◽  
Vol 2014 ◽  
pp. 1-13 ◽  
Author(s):  
Russell Gerrard ◽  
Montserrat Guillén ◽  
Jens Perch Nielsen ◽  
Ana M. Pérez-Marín
Keyword(s):  
Risk Aversion ◽  
Absolute Risk ◽  
Investment Strategy ◽  
Maximum Amount ◽  
Constant Amount ◽  
Investment Performance ◽  
Risky Assets ◽  
Absolute Risk Aversion ◽  
Long Run ◽  
Life Cycle Savings

We focus on automatic strategies to optimize life cycle savings and investment. Classical optimal savings theory establishes that, given the level of risk aversion, a saver would keep the same relative amount invested in risky assets at any given time. We show that, when optimizing lifecycle investment, performance and risk assessment have to take into account the investor’s risk aversion and the maximum amount the investor could lose, simultaneously. When risk aversion and maximum possible loss are considered jointly, an optimal savings strategy is obtained, which follows from constant rather than relative absolute risk aversion. This result is fundamental to prove that if risk aversion and the maximum possible loss are both high, then holding a constant amount invested in the risky asset is optimal for a standard lifetime saving/pension process and outperforms some other simple strategies. Performance comparisons are based on downside risk-adjusted equivalence that is used in our illustration.

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