Risk aversion with two risks : a theoretical extension

Jingyuan LI; Dongri LIU; Jianli WANG

doi:10.1016/j.jmateco.2016.01.002

Risk aversion with two risks : a theoretical extension

Jingyuan LI^*, Dongri LIU, Jianli WANG

^*Corresponding author for this work

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

8 Citations (Scopus)

Abstract

We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.

Original language	English
Pages (from-to)	100-105
Number of pages	6
Journal	Journal of Mathematical Economics
Volume	63
Early online date	18 Jan 2016
DOIs	https://doi.org/10.1016/j.jmateco.2016.01.002
Publication status	Published - Mar 2016

Funding

The research described here was supported by 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. DR12A9, Direct Grant for Research of Lingnan University under Research Project No. DR13C8 and the National Natural Science Foundation of China with Grant Number 71401074.

Keywords

Background risk
Bivariate utility function
Expectation dependence
Risk apportionment
Risk aversion

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10.1016/j.jmateco.2016.01.002

Cite this

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title = "Risk aversion with two risks : a theoretical extension",

abstract = "We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.",

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author = "Jingyuan LI and Dongri LIU and Jianli WANG",

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journal = "Journal of Mathematical Economics",

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T1 - Risk aversion with two risks : a theoretical extension

AU - LI, Jingyuan

AU - LIU, Dongri

AU - WANG, Jianli

PY - 2016/3

Y1 - 2016/3

N2 - We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.

AB - We identify new conditions ensuring risk aversion in the sense of Arrow–Pratt in a two-argument utility framework in which a financial risk is accompanied by a background risk. Our results generalize the findings of Finkelshtain et al. (1999). We consider a sequence of possible dependence among risks. We also provide an empirical example showing that second-order expectation dependence cannot be ignored in determining risk aversion with two risks.

KW - Background risk

KW - Bivariate utility function

KW - Expectation dependence

KW - Risk apportionment

KW - Risk aversion

UR - http://commons.ln.edu.hk/sw_master/2732

UR - http://www.scopus.com/inward/record.url?scp=84962575766&partnerID=8YFLogxK

U2 - 10.1016/j.jmateco.2016.01.002

DO - 10.1016/j.jmateco.2016.01.002

M3 - Journal Article (refereed)

SN - 0304-4068

VL - 63

SP - 100

EP - 105

JO - Journal of Mathematical Economics

JF - Journal of Mathematical Economics

ER -

Risk aversion with two risks : a theoretical extension

Abstract

Funding

Keywords

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Other files and links

Fingerprint

Explain Two Puzzles in Macro-Finance by Higher-Order Risk Attitudes and Background Risks (運用高階風險規避和背景風險的方法研究兩個宏觀金融之謎)

Comparative Risk Aversion with Multiple Dependent Background Risks

Decreasing Ross Risk Aversion: Higher-order Generalizations and Implications

Cite this

Risk aversion with two risks : a theoretical extension

Abstract

Funding

Keywords

Access to Document

Other files and links

Fingerprint

Projects

Explain Two Puzzles in Macro-Finance by Higher-Order Risk Attitudes and Background Risks (運用高階風險規避和背景風險的方法研究兩個宏觀金融之謎)

Comparative Risk Aversion with Multiple Dependent Background Risks

Decreasing Ross Risk Aversion: Higher-order Generalizations and Implications

Cite this