Standard Risk Aversion and the Demand for Risky Assets in the Presence of Background Risk

Arbeitspapier

We consider the demand for state contingent claims in the presence of a zero-mean, nonhedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show that the conditions for standard risk aversion: positive, declining absolute risk aversion and prudence are necessary and sufficient for generalized risk aversion. We also derive anecessary and suÆcient condition for the agent's derived risk aversion to increase with a simple increase in background risk.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CoFE Discussion Paper ; No. 00/36

Classification and Topics

• Classification: Wirtschaft
• Subject: Optionspreistheorie ; Anlageverhalten ; Risikoaversion ; Risiko ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Franke, Günter ; Stapleton, Richard C. ; Subrahmanyam, Marti G.
• Event: Veröffentlichung
• (who): University of Konstanz, Center of Finance and Econometrics (CoFE)
• (where): Konstanz
• (when): 2000

Further information

• Handle: http://hdl.handle.net/10419/85203
• URN: urn:nbn:de:bsz:352-opus-6213
• Last update: 10.03.2025, 11:44 AM CET