The paper studies an duopoly with risk averse firms exposed to demand uncertainty. A risk sharing market is introduced …

uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm … always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk …. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences …

The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function …

uncertainty. The firm faces additional sources of uncertainty that are aggregated into a background risk. We show that the firm … always chooses its optimal debt-equity ratio to minimize the weighted average cost of capital, irrespective of the risk …. When the background risk is either additive or multiplicative, we provide reasonable restrictions on the firm's preferences …

We examine risk taking when the bank's preferences exhibit smooth ambiguity aversion. Ambiguity is modeled by a second … return risk. Ambiguity preferences are modeled by the (second-order) expectation of a concave transformation of the (first …-order) expected utility of profit conditional on each plausible subjective distribution of the return risk. Within this framework, the …

distribution that captures the firm's uncertainty about which of the subjective beliefs govern the exchange rate risk. Ambiguity … profit conditional on each plausible subjective distribution of the exchange rate risk. Within this framework, we show that …

competitive firm that faces joint price and inflation risk. Given that the price risk is negatively correlated with the inflation … risk in the sense of expectation dependence, the firm optimally opts for an overhedge if the firm's coefficient of relative … risk aversion is everywhere no greater than unity. Furthermore, banning the firm from forward trading may induce the firm …