Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem
Chiaki Hara (),
James Huang () and
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James Huang: Department of Accounting and Management, Lancaster University Management School
No 654, KIER Working Papers from Kyoto University, Institute of Economic Research
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)
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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:kyo:wpaper:654
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