Certainty Equivalent in Capital Markets

We generalize the classical concept of a certainty equivalent to a model where an investor can trade on a capital market with several future trading dates. We show that if a riskless asset is traded and the investor has a CARA utility then our generalized certainty equivalent can be evaluated using the sum of discounted one-period certainty equivalents. This is not true if the investor has a HARA utility.

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Year of publication:	2003-01
Authors:	Kruschwitz, Lutz ; Löffler, Andreas
Institutions:	Wirtschaftswissenschaftliche Fakultät, Leibniz Universität Hannover
Subject:	certainty equivalent \| CARA

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Extent:	application/pdf
Series:	Hannover Economic Papers (HEP). - ISSN 0949-9962.
Type of publication:	Book / Working Paper
Notes:	12 pages
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty ; D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005405307