### Abstract

Original language | English |
---|---|

Publication status | Published - 5 Aug 2015 |

Event | The World Risk and Insurance Economics Congress 2015 - LMU Main Building, Geschwister-Scholl-Platz 1, Munich, Germany Duration: 2 Aug 2015 → 6 Aug 2015 http://www.wriec.net/ |

### Conference

Conference | The World Risk and Insurance Economics Congress 2015 |
---|---|

Country | Germany |

City | Munich |

Period | 2/08/15 → 6/08/15 |

Internet address |

### Fingerprint

### Keywords

- risk aversion
- risk premium
- dependent risk
- bivariate utility function

### Cite this

*Risk Aversion and Risk Premiums with Dependent Risks*. Paper presented at The World Risk and Insurance Economics Congress 2015, Munich, Germany.

}

**Risk Aversion and Risk Premiums with Dependent Risks.** / LI, Jingyuan; SCHLESINGER, Harris; YANG, Zhe.

Research output: Other Conference Contributions › Conference Paper (other) › Research › peer-review

TY - CONF

T1 - Risk Aversion and Risk Premiums with Dependent Risks

AU - LI, Jingyuan

AU - SCHLESINGER, Harris

AU - YANG, Zhe

PY - 2015/8/5

Y1 - 2015/8/5

N2 - By using a general bivariate utility function, this paper provides the conditions under which agents would like to remove primary risk in the presence of other dependent risk. For small risks, the conditions for retaining primary risk along with other dependent risk are also provided. The results of this paper indicate that the risk attitude to primary risk depends not only on the dependence relation between the risks, but also on the sign of the second-order cross derivatives of the utility function. In addition, agents also estimate the relative magnitude between the covariance of the risks and variance of the primary risk when they consider retaining the primary risk. Moreover, this paper examines the relation between risk premium for removing all risk simultaneously and those for removing risk sequentially. Rey’s (2003a) method to compare the total risk premium with the sum of the partial risk premiums is generalized to the case where there exists dependence relation between risks.

AB - By using a general bivariate utility function, this paper provides the conditions under which agents would like to remove primary risk in the presence of other dependent risk. For small risks, the conditions for retaining primary risk along with other dependent risk are also provided. The results of this paper indicate that the risk attitude to primary risk depends not only on the dependence relation between the risks, but also on the sign of the second-order cross derivatives of the utility function. In addition, agents also estimate the relative magnitude between the covariance of the risks and variance of the primary risk when they consider retaining the primary risk. Moreover, this paper examines the relation between risk premium for removing all risk simultaneously and those for removing risk sequentially. Rey’s (2003a) method to compare the total risk premium with the sum of the partial risk premiums is generalized to the case where there exists dependence relation between risks.

KW - risk aversion

KW - risk premium

KW - dependent risk

KW - bivariate utility function

UR - http://www.wriec.net/concurrent-sessions-v-vi/

M3 - Conference Paper (other)

ER -