Investments in energy technologies are substantially governed by climate policy. We demonstrate analytically that price-based instruments, such as carbon-taxes, and quantity-based regulations, like emission trading systems, have distinct effects on the (co-)variance of power plant profits. If...

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...

We investigate the gender difference in financial risk aversion using a survey of finance professors from universities across the United States. We compare their actual portfolio allocations to that of respondents in the Federal Reserve's Survey of Consumer Finances (SCF). We find that among...

This paper proposes a methodology to analyse the risk and return of large loan portfolios in a joint setting. I propose a tractable model to obtain the distribution of loan returns from observed interest rates and default frequencies. I follow a sectoral approach that captures the heterogeneous...

We show that if an agent is uncertain about the precise form of his utility function, his actual relative risk aversion may depend on wealth even if he knows his utility function lies in the class of constant relative risk aversion (CRRA) utility functions. We illustrate the consequences of this...

We study the optimal insurance demand in the μ,σ space when the decision-maker faces a first-order risk increase. In particular, we investigate the effect of an increase in the expected damage when the variance is held constant. An unambiguous result is derived on insurance demand that differs...

Estimates of agents’ risk aversion differ between market studies and experimental studies. We demonstrate that these estimates can be reconciled through consistent treatment of agents’ propensity for narrow framing.

The objective of this paper is to identify variational preferences and multiple-prior (maxmin) expected utility functions that exhibit aversion to risk under some probability measure from among the priors. Risk aversion has profound implications on agents’ choices and on market prices and...

We provide a necessary and a sufficient condition 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...

This paper aims at assessing the optimal behavior of a firm facing stochastic costs of production. In an imperfectly competitive setting, we evaluate to what extent a firm may decide to locate part of its production in other markets different from which it is actually settled. This decision is...