Preserving the Rothschild–Stiglitz type of increasing risk with background risk

Xu GUO, Jingyuan LI*, Dongri LIU, Jian Li WANG

*Corresponding author for this work

Research output: Journal PublicationsJournal Article (refereed)

3 Citations (Scopus)

Abstract

Background risk refers to a risk that is exogenous and is not subject to transformations by a decision-maker. In this paper, we extend the definition of the Rothschild–Stiglitz type of increasing risk to a background risk framework. We theoretically investigate a more general definition of increase in risk in the presence of background risk. The results suggest that an extended concept of expectation dependence plays a vital role.
Original languageEnglish
Pages (from-to)144-149
Number of pages6
JournalInsurance: Mathematics and Economics
Volume70
Early online date22 Jun 2016
DOIs
Publication statusPublished - Sep 2016

Bibliographical note

The research described here was supported by the Natural Science Foundation of Jiangsu Province, China, Grant No. BK20150732; the National Natural Science Foundation of China with Grant No. 71401074; General Research Fund of the Hong Kong Research Grants Council under Research Project No. LU13500814; the Faculty Research Grant of Lingnan University under Research Project No. DB15A2 and No. DB16A1.

Keywords

  • Background risk
  • Comparison of risk
  • Expectation dependence
  • Increasing risk
  • Mean-preserving spread

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