Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem

Chiaki Hara (), 千秋 原, チアキ ハラ, James Huang and Christoph Kuzmics

No 368, PIE/CIS Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: We provide a necessary and a sufficient condition 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)
JEL-codes: D51 D58 D81 G11 G12 G13 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2008-03
Note: March 31, 2008 -- Title page
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/15708/pie_dp368.pdf

Related works:
Journal Article: Effects of background risks on cautiousness with an application to a portfolio choice problem (2011)
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:hit:piecis:368

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