Watt, Richard; Gunby, Philip - In: The Journal of Risk Finance 22 (2021) 3/4, pp. 279-295
Purpose: The Arrow–Pratt approximation to the risk premium is only valid for small risks. In this paper we consider a second approximation, based on risk-neutral probabilities and which requires no greater information than the Arrow–Pratt approximation, that works well for both small and...