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Effects of background risks on cautiousness with an application to a portfolio choice problem

Hara, Chiaki and Huang, James and Kuzmics, Christoph (2011) Effects of background risks on cautiousness with an application to a portfolio choice problem. Journal of Economic Theory, 146 (1). pp. 346-358. ISSN 0022-0531

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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.

Item Type: Article
Journal or Publication Title: Journal of Economic Theory
Uncontrolled Keywords: Risk aversion ; risk tolerance ; cautiousness ; portfolio insurance ; idiosyncratic risks ; background risks ; incomplete markets
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 45514
Deposited By: ep_importer_pure
Deposited On: 11 Jul 2011 19:33
Refereed?: Yes
Published?: Published
Last Modified: 04 Jul 2013 10:54
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/45514

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