The computational property of the Aumann–Serrano performance index under risk-averse and risk-loving preference

Jiro Hodoshima

Finance Research Letters, 2021, vol. 39, issue C

Abstract: We consider computational aspects of the Aumann–Serrano (AS) performance index proposed by Kadan and Liu (2014). When investors are not only risk averse but also risk loving, the original implicit equation of the AS performance index has in general two solutions of the true index and a pseudo index of zero. This makes it difficult to search for the true index by programs of solving nonlinear equations. On the other hand, an implicit equation of another equivalent performance index based on utility indifference pricing is a continuous and strictly decreasing function, which makes it always easy to find the true index by programs.

Keywords: Aumann–Serrano performance index; Utility indifference pricing; Inner rate of risk aversion; Risk loving; Risk averse (search for similar items in EconPapers)
JEL-codes: C63 G11 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319312905

DOI: 10.1016/j.frl.2020.101588

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