Title

Comparative Ross risk aversion in the presence of mean dependent risks

Document Type

Journal article

Source Publication

Journal of Mathematical Economics

Publication Date

3-1-2014

Volume

51

First Page

128

Last Page

135

Keywords

Comparative cross Ross risk aversion, Decreasing cross Ross risk aversion, Dependent background risk, N-switch independence property, Partial risk premium

Abstract

This paper studies comparative risk aversion between risk averse agents in the presence of a background risk. Our contribution differs from most of the literature in two respects. First, background risk does not need to be additive or multiplicative. Second, the two risks are not necessarily mean independent, and may be conditional expectation increasing or decreasing. We show that our order of cross Ross risk aversion is equivalent to the order of partial risk premium, while our index of decreasing cross Ross risk aversion is equivalent to decreasing partial risk premium. These results generalize the comparative risk aversion model developed by Ross for mean independent risks. Our theoretical results are related to utility functions having the n-switch independence property.

DOI

10.1016/j.jmateco.2013.08.001

Print ISSN

03044068

E-ISSN

18731538

Publisher Statement

Copyright © 2013 Elsevier B.V.

Access to external full text or publisher's version may require subscription.

Additional Information

This paper is also available at Social Science Research Network at http://ssrn.com/abstract=2002047

Full-text Version

Publisher’s Version

Recommended Citation

Dionne, G., & Li, J. (2014). Comparative Ross risk aversion in the presence of mean dependent risks. Journal of Mathematical Economics, 51, 128-135. doi: 10.1016/j.jmateco.2013.08.001