Power Risk Aversion Utility Functions
AbstractThis paper introduces a new class of utility functions---the power risk aversion. It is shown that the CRRA and CARA utility functions are both in this class. The implications of the PRA utility functions are explored in the context of growth theory. In particular, it is found that economies facing a common real interest rate do not necessarily grow at the same rates if they start with different levels of capital stock. Thus diversity in growth performance across countries occurs even if these countries have access to perfect international capital markets. Potential applications of the PRA in asset pricing are considered.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 1 (2000)
Issue (Month): 2 (November)
PRA utility functions; Growth; Asset pricing;
Other versions of this item:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
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- repec:ner:dauphi:urn:hdl:123456789/10710 is not listed on IDEAS
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- Smith, William T. & Zhang, Qiang, 2007. "Asset pricing with multiplicative habit and power-expo preferences," Economics Letters, Elsevier, vol. 94(3), pages 319-325, March.
- Bahaji, Hamza, 2012. "De l’évaluation des stock options en « juste valeur » : apport de l’approche comportementale," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/10710 edited by Casta, Jean-François, 12.
- Denis Conniffe, 2007. "The Flexible Three Parameter Utility Function," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 57-63, May.
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