 A general theory of risk apportionmentChristian Gollier (christian.gollier@tse-fr.eu) No 19-1003, TSE Working Papers from Toulouse School of Economics (TSE) Abstract: Suppose that the conditional distributions of ˜x (resp. ˜y) can be ranked according to the m-th (resp. n-th) risk order. Increasing their statistical concordance increases the (m, n) degree riskiness of (˜x, ˜y), i.e., it reduces expected utility for all bivariate utility functions whose sign of the (m, n) cross-derivative is (−1)m+n+1. This means in particular that this increase in concordance of risks induces a m + n degree risk increase in ˜x + ˜y. On the basis of these general results, I provide different recursive methods to generate high degrees of univariate and bivariate risk increases. In the reverse-or-translate (resp.reverse-or-spread) univariate procedure, a m degree risk increase is either reversed or translated downward (resp. spread) with equal probabilities to generate a m + 1 (resp.m + 2) degree risk increase. These results are useful for example in asset pricing theory when the trend and the volatility of consumption growth are stochastic or statistically linked. Keywords: Stochastic dominance; risk orders; prudence; temperance; concordance. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:122907 Access Statistics for this paper More papers in TSE Working Papers from Toulouse School of Economics (TSE) Contact information at EDIRC. |
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