Risk and Derivative Price

Yusuke Osaki
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Yusuke Osaki: Risk & Sustainable Management Group, School of Economics, University of Queensland

No WP2R07, Risk & Uncertainty Working Papers from Risk and Sustainable Management Group, University of Queensland

Abstract: We consider an asset market traded three types of assets: the risk–free asset, the market portfolio and derivatives written on the market portfolio return. We determine a sufficient condition to guarantee that noise risk monotonically changes their derivatives. The condition is that Arrow–Pratt absolute risk aversion is decreasing and convex.

Keywords: Derivative price; Noise risk; Nonlineality; Risk aversion (search for similar items in EconPapers)
JEL-codes: D51 D81 G12 (search for similar items in EconPapers)
Date: 2007-03
New Economics Papers: this item is included in nep-fmk and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:rsm:riskun:r07_2

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