Risk-value efficient portfolios and asset pricing

Günter Franke () and Martin Weber

No 354, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: Portfolio choice is usually modelled by von Neumann-Morgenstern utility. Risk-value models are more general and permit the derivation of risk-value efficient frontiers. A behaviorally based risk measure with an endogenous or exogenous benchmark is used to derive efficient portfolios and to analyse the implied equilibrium asset pricing. In risk-value models a richer set of sharing rules is obtained than in a von Neumann-Morgenstern world. Linear sharing rules are obtained only for quadratic risk functions. If the risk function is modelled by a negative HARA-function, then sharing rules are convex or concave relative to each other. Hence, agents buy and sell portfolio insurance motivating trade in options. Asset pricing, however, is similar to that in a von Neumann-Morgenstern world.

Date: 1997
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Working Paper: Risk-Value Efficient Portfolios and Asset Pricing (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:354

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