Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem

We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.

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Year of publication:	2008-06
Authors:	Hara, Chiaki ; Huang, James ; Kuzmics, Christoph
Institutions:	Institute of Economic Research, Kyoto University
Subject:	Risk aversion \| risk tolerance \| cautiousness \| portfolio insurance \| idiosyncratic risks \| background risks \| incomplete markets

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Extent:	application/pdf
Series:	KIER Working Papers.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 654 27 pages longages
Classification:	D51 - Exchange and Production Economies ; D58 - Computable and Other Applied General Equilibrium Models ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; G11 - Portfolio Choice ; G12 - Asset Pricing ; G13 - Contingent Pricing; Futures Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005385281