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

Chiaki Hara (), James Huang () and Christoph Kuzmics
Additional contact information
James Huang: Department of Accounting and Management, Lancaster University Management School

No 654, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We provide necessary and sufficient conditions 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: 27pages
Date: 2008-06
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http://www.kier.kyoto-u.ac.jp/DP/DP654.pdf (application/pdf)

Related works:
Journal Article: Effects of background risks on cautiousness with an application to a portfolio choice problem (2011) Downloads
Working Paper: Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:654

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