The Size of Background Risk and the Theory of Risk Bearing
|Authors:||Subrahmanyam, Marti G|
Stapleton, Richard C.
|Publisher:||The Size of Background Risk and the Theory of Risk Bearing|
|Abstract:||We consider the demand for state contingent claims in the presence of a zero-mean, non-hedgeable 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 less steep 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.|
|Appears in Collections:||Finance Working Papers|
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