The interest rate for saving as a possibilistic risk

Irina Georgescu and Jani Kinnunen

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Abstract: In the paper there is studied an optimal saving model in which the interest-rate risk for saving is a fuzzy number. The total utility of consumption is defined by using a concept of possibilistic expected utility. A notion of possibilistic precautionary saving is introduced as a measure of the variation of optimal saving level when moving from a sure saving model to a possibilistic risk model. A first result establishes a necessary and sufficient condition that the presence of a possibilistic interest-rate risk generates an extra-saving. This result can be seen as a possibilistic version of a Rothschilld and Stiglitz theorem on a probabilistic model of saving. A second result of the paper studies the variation of the optimal saving level when moving from a probabilistic model (the interest-rate risk is a random variable) to a possibilistic model (the interest-rate risk is a fuzzy number).

Date: 2019-07
New Economics Papers: this item is included in nep-upt
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http://arxiv.org/pdf/1908.00445 Latest version (application/pdf)

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Journal Article: The interest rate for saving as a possibilistic risk (2020)
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