A General Index of Inherent Risk
AbstractWe extend the pioneering work of Aumann and Serrano by presenting an index of inherent riskiness of a gamble having the desirable properties of their index, while being applicable to gambles with either positive or negative expectations. As such, our index provides a measure of riskiness which is of use for both risk lovers and risk aversive gamblers, and is defined for all discrete and a large class of continuous gambles. We analyze abstract properties of our index, and present in addition three empirical applications - roulette, horse betting market and US options traded on financial stocks between 2005 and 2007.
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Bibliographic InfoPaper provided by Department of Economics, Bar-Ilan University in its series Working Papers with number 2009-9.
Date of creation: Apr 2009
Date of revision:
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Postal: Faculty of Social Sciences, Bar Ilan University 52900 Ramat-Gan
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Web page: http://econ.biu.ac.il
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-13 (All new papers)
- NEP-RMG-2010-03-13 (Risk Management)
- NEP-UPT-2010-03-13 (Utility Models & Prospect Theory)
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