Certainty Equivalent in Capital Markets

Lutz Kruschwitz and Andreas Löffler

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: We generalize the classical concept of a certainty equivalent to a model where an investor can trade on a capital market with several future trading dates. We show that if a riskless asset is traded and the investor has a CARA utility then our generalized certainty equivalent can be evaluated using the sum of discounted one-period certainty equivalents. This is not true if the investor has a HARA utility.

Keywords: certainty equivalent; CARA (search for similar items in EconPapers)
JEL-codes: D81 D92 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2003-01
New Economics Papers: this item is included in nep-fin
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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