Infrequent Extreme Risks
AbstractThe main tools and concepts of financial and actuarial theory are designed to handle standard, or even small risks. The aim of this paper is to reconsider some selected financial problems, in a setup including infrequent extreme risks. We first consider investors maximizing the expected utility function of their future wealth, and we establish the necessary and sufficient conditions on the utility function to ensure the existence of a non degenerate demand for assets with extreme risks. This new class of utility functions, called LIRA, does not contain the classical HARA and CARA utility functions, which are not adequate in this framework. Then we discuss the corresponding asset supply-demand equilibrium model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal The GENEVA PAPERS on Risk and Insurance Theory.
Volume (Year): 29 (2004)
Issue (Month): 1 (06)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=102897
Other versions of this item:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Chollete, Loran & Jaffee, Dwight, 2009. "Economic Implications of Extreme and Rare Events," UiS Working Papers in Economics and Finance 2009/32, University of Stavanger.
- Gourieroux, C. & Monfort, A., 2005. "The econometrics of efficient portfolios," Journal of Empirical Finance, Elsevier, vol. 12(1), pages 1-41, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.