EconPapers    
Economics at your fingertips  
 

Background risk and the demand for state-contingent claims

Günter Franke (), Richard Stapleton () and Marti Subrahmanyam ()

Economic Theory, 2004, vol. 23, issue 2, 321-335

Abstract: We consider the demand for state-contingent claims, in the presence of an independent zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she chooses a demand function for contingent claims with a smaller slope everywhere, given a simple increase in background risk. We show that the conditions for standard risk aversion, that is positive, declining absolute risk aversion and prudence, are necessary and sufficient for generalized risk aversion. Copyright Springer-Verlag Berlin/Heidelberg 2004

Keywords: Background risk; Precautionary premium; Demand for tradable risk. (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (14) Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1007/s00199-003-0368-1 (text/html)
Access to full text is restricted to subscribers.

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:joecth:v:23:y:2004:i:2:p:321-335

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

DOI: 10.1007/s00199-003-0368-1

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2020-02-09
Handle: RePEc:spr:joecth:v:23:y:2004:i:2:p:321-335