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Catastrophe Aversion and Risk Equity in an Interdependent World

Bernard, Carole, Rheinberger, Christoph and Treich, Nicolas (2017) Catastrophe Aversion and Risk Equity in an Interdependent World. TSE Working Paper, n. 17-811, Toulouse

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Catastrophe aversion and risk equity are important concepts in both risk management theory and practice. Keeney (1980) was the first to formally define these concepts. He demonstrated that the two concepts are always in conflict. Yet this result is based on the assumption that individual risks are independent and has thus limited relevance for real world catastrophic events. We extend Keeney’s result to dependent risks and derive the conditions under which more correlation between two risks induces a more catastrophic risk. We then generalize some of the results for multiple correlated risks.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2017
Place of Publication: Toulouse
Uncontrolled Keywords: risk equity, catastrophe aversion, correlation, dependence
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 18 May 2017 12:58
Last Modified: 08 Oct 2019 23:04
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