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
Authors:	Kruschwitz, Lutz ; Löffler, Andreas
Publisher:	Hannover : Universität Hannover, Wirtschaftswissenschaftliche Fakultät
Subject:	Erwartungsnutzen \| Kapitalmarkttheorie \| Risikoaversion \| Nutzenfunktion \| Theorie \| Entscheidung bei Unsicherheit \| certainty equivalent \| CARA

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Series:	Diskussionsbeitrag ; 272
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	361013485 [GVK] hdl:10419/78353 [Handle] RePEc:han:dpaper:dp-272 [RePEc]
Classification:	D81 - Criteria for Decision-Making under Risk and Uncertainty ; D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
Source:	EconStor

Persistent link: https://www.econbiz.de/10010317612