Higher-order risk attitudes toward correlation
Document Type
Other
Source Publication
Social Science Research Network
Publication Date
6-1-2013
Keywords
higher-order risk attitudes, stochastic dominance dependence, correlation, covariance
Abstract
Higher-order risk attitudes other than risk aversion (e.g., prudence and temperance) play vital roles both in theoretical and empirical work. While the literature has mainly focused on how they entail a preference for combining “good” outcomes with “bad” outcomes, we consider here an alternative approach which relates higher-order risk attitudes to the sign of correlation. The theoretical result in this paper proposes new insights into economic and financial applications such as risk aversion in the presence of another risk, bivariate stochastic dominance and justifying the first-order approach to moral hazard principal-agent problems.
DOI
10.2139/ssrn.2270995
Publisher Statement
Copyright © 2013 Social Science Electronic Publishing, Inc
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Li, J. (2013). Higher-order risk attitudes toward correlation. Social Science Research Network. Retrieved from http://dx.doi.org/10.2139/ssrn.2270995