Effects of background risks on cautiousness with an application to a portfolio choice problem

Chiaki Hara (), James Huang and Christoph Kuzmics

Journal of Economic Theory, 2011, vol. 146, issue 1, 346-358

Abstract: We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.

Keywords: Risk; aversion; Risk; tolerance; Cautiousness; Portfolio; insurance; Idiosyncratic; risks; Background; risks; Incomplete; markets (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem (2008)
Working Paper: Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:146:y:2011:i:1:p:346-358

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