Decreasing Ross risk aversion : higher-order generalizations and implications

Jianli WANG; Jingyuan LI

doi:10.1016/j.jmateco.2014.02.002

Decreasing Ross risk aversion : higher-order generalizations and implications

Jianli WANG, Jingyuan LI

Department of Finance and Insurance

Research output: Journal Publications › Journal Article (refereed) › peer-review

3 Citations (Scopus)

Abstract

We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n -th risk increase raise risk aversion in the Arrow-Pratt sense if and only if decreasing ( n + 1 ) -th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing ( n + 1 ) -th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n / m -th ( n > m ≥ 1 ) Ross risk aversion.

Original language	English
Pages (from-to)	136-142
Number of pages	7
Journal	Journal of Mathematical Economics
Volume	55
Early online date	26 Feb 2014
DOIs	https://doi.org/10.1016/j.jmateco.2014.02.002
Publication status	Published - Dec 2014

Funding

This research was supported by the Faculty Research Grant of Lingnan University under Research Project No. DR12A9, Direct Grant for Research of Lingnan University under Research Project No. DR13C8 and the Fundamental Research Funds for the Central Universities under Research Project No. NR2014002.

Keywords

Background risk
Decreasing n-th Ross risk aversion
Risk vulnerability: one-switch utility function

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10.1016/j.jmateco.2014.02.002

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title = "Decreasing Ross risk aversion : higher-order generalizations and implications",

abstract = "We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n -th risk increase raise risk aversion in the Arrow-Pratt sense if and only if decreasing ( n + 1 ) -th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing ( n + 1 ) -th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n / m -th ( n > m ≥ 1 ) Ross risk aversion.",

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journal = "Journal of Mathematical Economics",

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T1 - Decreasing Ross risk aversion : higher-order generalizations and implications

AU - WANG, Jianli

AU - LI, Jingyuan

PY - 2014/12

Y1 - 2014/12

N2 - We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n -th risk increase raise risk aversion in the Arrow-Pratt sense if and only if decreasing ( n + 1 ) -th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing ( n + 1 ) -th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n / m -th ( n > m ≥ 1 ) Ross risk aversion.

AB - We define decreasing higher-degree Ross risk aversion and provide an intuitive interpretation for it. We show that all deteriorations of background risk in the sense of n -th risk increase raise risk aversion in the Arrow-Pratt sense if and only if decreasing ( n + 1 ) -th degree Ross risk aversion holds. Meanwhile, the utility functional form of the agent with decreasing ( n + 1 ) -th degree Ross risk aversion is specified. Our result also implies decreasing 3-rd degree Ross risk aversion can be used to characterize the sufficient condition of risk vulnerability. Moreover, our analysis shows the implication of decreasing n / m -th ( n > m ≥ 1 ) Ross risk aversion.

KW - Background risk

KW - Decreasing n-th Ross risk aversion

KW - Risk vulnerability: one-switch utility function

UR - http://commons.ln.edu.hk/sw_master/2508

UR - http://www.scopus.com/inward/record.url?scp=84922703288&partnerID=8YFLogxK

U2 - 10.1016/j.jmateco.2014.02.002

DO - 10.1016/j.jmateco.2014.02.002

M3 - Journal Article (refereed)

SN - 0304-4068

VL - 55

SP - 136

EP - 142

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -

Decreasing Ross risk aversion : higher-order generalizations and implications

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Keywords

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