THE GENERALIZED ARROW-PRATT COEFFICIENT

Sudhir A. Shah
Additional contact information
Sudhir A. Shah: Centre for Development Economics, Delhi School of Economics, University of Delhi, India

No 254, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We define vector-valued generalized Arrow-Pratt (GAP) coefficients for a utility defined on a Hilbert outcome space. Given risk averse, increasing and twice differentiable utilities on such outcome spaces, comparisons of their risk aversion using GAP coefficients are congruent to comparisons using well-founded decision-theoretic criteria. The Hilbert space setting admits risks embodied in a significant class of random processes, especially second-order processes. We also provide a theoretically well-founded and computationally tractable method for estimating the realized GAP coefficient from observed data when the outcome space is a reproducing kernel Hilbert space. We use the GAP coefficients to predict the effect of differences in risk aversion on an asset portfolio when assets are specified by dividend processes. Finally, we show a duality between utility functions on Euclidean spaces and GAP coeficients.

Pages: 28 pages
Date: 2016-03
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cdedse.org/pdf/work254.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cde:cdewps:254

Ordering information: This working paper can be ordered from
http://www.cdedse.org/

The price is free.

Access Statistics for this paper

More papers in Working papers from Centre for Development Economics, Delhi School of Economics Delhi 110 007. Contact information at EDIRC.
Bibliographic data for series maintained by Sanjeev Sharma ().