Post by Sapphire Capital on Aug 12, 2008 20:28:20 GMT 4
Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem
Chiaki Hara
Kyoto University - Institute of Economic Research
James Huang
Lancaster University - Department of Accounting and Finance
Christoph Kuzmics
Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS)
June 5, 2008
Abstract:
We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1144006_code628236.pdf?abstractid=1144006&mirid=3
Chiaki Hara
Kyoto University - Institute of Economic Research
James Huang
Lancaster University - Department of Accounting and Finance
Christoph Kuzmics
Northwestern University - Department of Managerial Economics and Decision Sciences (MEDS)
June 5, 2008
Abstract:
We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1144006_code628236.pdf?abstractid=1144006&mirid=3