Incremental Risk Vulnerability

Günter Franke (), Richard C. Stapleton () and Marti G. Subrahmanyam ()
Additional contact information
Richard C. Stapleton: University of Manchester and University of Melbourne
Marti G. Subrahmanyam: Stern School of Business, New York University

No 05-08, CoFE Discussion Paper from Center of Finance and Econometrics, University of Konstanz

Abstract: We present a necessary and sufficient condition on an agent’s utility function for a simple mean preserving spread in an independent background risk to increase the agent’s risk aversion (incremental risk vulnerability). Gollier and Pratt (1996) have shown that declining and convex risk aversion as well as standard risk aversion are sufficient for risk vulnerability. We show that these conditions are also sufficient for incremental risk vulnerability. In addition, we present sufficient conditions for a restricted set of stochastic increases in an independent background risk to increase risk aversion.

JEL-codes: D52 D81 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-upt
Date: 2005-09-23
View list of references

Downloads: (external link)
http://cofe.uni-konstanz.de/Papers/dp05_08.pdf (application/pdf)

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

Ordering information: This working paper can be ordered from
http://cofe.uni-konstanz.de

Access Statistics for this paper

More papers in CoFE Discussion Paper from Center of Finance and Econometrics, University of Konstanz
Contact information at EDIRC.
Series data maintained by Ingmar Nolte ().