On expected utility for financial insurance portfolios with stochastic dependencies

Ortega, Eva-María and Laureano F. Escudero

European Journal of Operational Research, 2010, vol. 200, issue 1, pages 181-186

Abstract: The effect of background risks as human capital, market risks and catastrophic events has been considered in the literature in different contexts. In this note, we consider financial insurance portfolios with insurable risks and one background risk (uninsurable financial asset), such that the random losses and the background risk depend on environmental parameters. We study how dependencies between the risks influence the expected utility of the portfolio's wealth distribution under risk aversion, when the environmental parameters are random. Stochastic bounds for the expected wealth are given from modeling the dependence between the parameters by different notions. Similar results are given for multivariate portfolios with n groups and multivariate risk aversion, besides an expected utility comparison result for the minimum and the total portfolio's wealth.

Keywords: Utility; theory; Risk; analysis; Finance; Stochastic; dominance (search for similar items in EconPapers)
Date: 2010

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Persistent link: http://EconPapers.repec.org/RePEc:eee:ejores:v:200:y:2010:i:1:p:181-186

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