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Higher-order risk vulnerability

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Higher-order risk vulnerability. / Huang, Xiaoping; Stapleton, Richard Christopher.

In: Economic Theory, Vol. 63, No. 2, 02.2017, p. 387-406.

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Huang, Xiaoping ; Stapleton, Richard Christopher. / Higher-order risk vulnerability. In: Economic Theory. 2017 ; Vol. 63, No. 2. pp. 387-406.

Bibtex

@article{d1c5557fedad48d2b189f25cdbf608f3,
title = "Higher-order risk vulnerability",
abstract = "We add an independent unfair background risk to higher-order risk-takingmodels in the current literature and examine its interaction with the main risk underconsideration. Parallel to the well-known concept of risk vulnerability, which is definedby Gollier and Pratt (Econometrica 64:1109–1123, 1996), an agent is said to have atype of higher-order risk vulnerability if adding an independent unfair background riskto wealth raises his level of this type of higher-order risk aversion. We derive necessaryand sufficient conditions for all types of higher-order risk vulnerabilities and explaintheir behavioral implications. We find that as in the case of risk vulnerability, allfamiliar HARA utility functions have all types of higher-order risk vulnerabilitiesexcept for a type of third-order risk vulnerability corresponding to a downside riskaversion measure called the Schwarzian derivative.",
keywords = "Background risk, Downside risk aversion, Downside risk vulnerability, Higher-order risk vulnerability",
author = "Xiaoping Huang and Stapleton, {Richard Christopher}",
note = "The final publication is available at Springer via http://dx.doi.org/10.1007/s00199-015-0935-2",
year = "2017",
month = feb,
doi = "10.1007/s00199-015-0935-2",
language = "English",
volume = "63",
pages = "387--406",
journal = "Economic Theory",
issn = "0938-2259",
publisher = "Springer-Verlag,",
number = "2",

}

RIS

TY - JOUR

T1 - Higher-order risk vulnerability

AU - Huang, Xiaoping

AU - Stapleton, Richard Christopher

N1 - The final publication is available at Springer via http://dx.doi.org/10.1007/s00199-015-0935-2

PY - 2017/2

Y1 - 2017/2

N2 - We add an independent unfair background risk to higher-order risk-takingmodels in the current literature and examine its interaction with the main risk underconsideration. Parallel to the well-known concept of risk vulnerability, which is definedby Gollier and Pratt (Econometrica 64:1109–1123, 1996), an agent is said to have atype of higher-order risk vulnerability if adding an independent unfair background riskto wealth raises his level of this type of higher-order risk aversion. We derive necessaryand sufficient conditions for all types of higher-order risk vulnerabilities and explaintheir behavioral implications. We find that as in the case of risk vulnerability, allfamiliar HARA utility functions have all types of higher-order risk vulnerabilitiesexcept for a type of third-order risk vulnerability corresponding to a downside riskaversion measure called the Schwarzian derivative.

AB - We add an independent unfair background risk to higher-order risk-takingmodels in the current literature and examine its interaction with the main risk underconsideration. Parallel to the well-known concept of risk vulnerability, which is definedby Gollier and Pratt (Econometrica 64:1109–1123, 1996), an agent is said to have atype of higher-order risk vulnerability if adding an independent unfair background riskto wealth raises his level of this type of higher-order risk aversion. We derive necessaryand sufficient conditions for all types of higher-order risk vulnerabilities and explaintheir behavioral implications. We find that as in the case of risk vulnerability, allfamiliar HARA utility functions have all types of higher-order risk vulnerabilitiesexcept for a type of third-order risk vulnerability corresponding to a downside riskaversion measure called the Schwarzian derivative.

KW - Background risk

KW - Downside risk aversion

KW - Downside risk vulnerability

KW - Higher-order risk vulnerability

U2 - 10.1007/s00199-015-0935-2

DO - 10.1007/s00199-015-0935-2

M3 - Journal article

VL - 63

SP - 387

EP - 406

JO - Economic Theory

JF - Economic Theory

SN - 0938-2259

IS - 2

ER -