Aumann and Serrano's economic index of risk for sums of gambles

Minqiang Li

Cogent Economics & Finance, 2014, vol. 2, issue 1, 1-5

Abstract: We study Aumann and Serrano's (2008) risk index for sums of gambles that are not dependent. If the dependent parts are similarly ordered, then the risk index of the sum is always larger than the minimum of the risk indices of the two gambles. For negative dependence, the risk index of the sum is always smaller than the maximum. The above results agree with our intuitions of risk diversification well. These result points out another attractive property of Aumann and Serrano's risk index. These properties are potentially useful for risk assessment purposes of financial securities.

Date: 2014
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Working Paper: Aumann and Serrano's Economic Index of Risk for Sums of Gambles (2014)
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DOI: 10.1080/23322039.2014.921574

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