Gollier, Christian
(2019)
A general theory of risk apportionment.
TSE Working Paper, n. 19-1003, Toulouse
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Abstract
Suppose that the conditional distributions of ˜x (resp. ˜y) can be ranked according to the m-th (resp. n-th) risk order. Increasing their statistical concordance increases the(m, n) degree riskiness of (˜x, ˜y), i.e., it reduces expected utility for all bivariate utility functions whose sign of the (m, n) cross-derivative is (−1)m+n+1. This means in particular that this increase in concordance of risks induces a m + n degree risk increase in ˜x + ˜y. On the basis of these general results, I provide different recursive methods to generate high degrees of univariate and bivariate risk increases. In the reverse-or-translate (resp.reverse-or-spread) univariate procedure, a m degree risk increase is either reversed or translated downward (resp. spread) with equal probabilities to generate a m + 1 (resp.m + 2) degree risk increase. These results are useful for example in asset pricing theory when the trend and the volatility of consumption growth are stochastic or statistically linked.
Item Type: | Monograph (Working Paper) |
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Language: | English |
Date: | April 2019 |
Place of Publication: | Toulouse |
Uncontrolled Keywords: | Stochastic dominance, risk orders, prudence, temperance, concordance |
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: | 10 Apr 2019 06:07 |
Last Modified: | 13 Mar 2021 12:26 |
OAI Identifier: | oai:tse-fr.eu:122907 |
URI: | https://publications.ut-capitole.fr/id/eprint/32325 |
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