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Gollier, Christian
(2017)
Variance stochastic orders.
TSE Working Paper, n. 17-828, Toulouse
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Abstract
Suppose that the decision-maker is uncertain about the variance of the payoff of a gamble, and that this uncertainty comes from not knowing the number of zero-mean i.i.d. risks attached to the gamble. In this context, we show that any n-th degree increase in this variance risk reduces expected utility if and only if the sign of the 2n-th derivative of the utility function u is (-1)n+1. Moreover, increasing the statistical concordance between the mean payoff of the gamble and the n-th degree riskiness of its variance reduces expected utility if and only if the sign of the 2n + 1 derivative of u is (-1)n+1. These results generalize the theory of risk apportionment developed by Eeckhoudt and Schlesinger (2006), and is useful to better understand the impact of stochastic volatility on welfare and asset prices.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | July 2017 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Long-run risk, stochastic dominance, prudence, temperance, stochastic volatility, risk apportionment |
| JEL Classification: | D81 - Criteria for Decision-Making under Risk and Uncertainty |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 14 Mar 2018 13:44 |
| Last Modified: | 02 Apr 2021 15:55 |
| OAI Identifier: | oai:tse-fr.eu:31818 |
| URI: | https://publications.ut-capitole.fr/id/eprint/24198 |
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