Catastrophe Aversion and Risk Equity in an Interdependent World
Christoph Rheinberger () and
Nicolas Treich ()
No 872, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse
Catastrophe aversion and risk equity are important concepts both in risk management theory and practice. Ralph Keeney (1980) was the first to formally define these concepts. He demonstrated that the two concepts are always in con ict. Yet his result is based on the assumption that individual risks are independent. It has therefore limited relevance for real-world catastrophic events. We extend Keeney's result to dependent risks and derive the conditions under which more equity and more correlation between two risks imply a more catastrophic situation. We then generalize some of the results for multiple correlated risks.
Keywords: risk equity; catastrophe aversion; correlation; dependence structure (search for similar items in EconPapers)
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Working Paper: Catastrophe Aversion and Risk Equity in an Interdependent World (2018)
Working Paper: Catastrophe Aversion and Risk Equity in an Interdependent World (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ide:wpaper:31745
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