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From Local Theory of Risk Aversion to an Intertemporal Theory of Risks Under Discrete Choices

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Author Info

  • Alverez, L.H.R.
  • Kanniainen, V.

Abstract

While the well-known Pratt-Arrow measure of risk premium is useful in studying local risks, this paper introduces new measures to cope with non-trivial risks, including default. The premia derived are cast in terms of life-time and instantaneous utilities and required income. the results follow from the martingale property of pricing of american type contingent claims analogous to perpetual binary put options on dividend paying assets.

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Bibliographic Info

Paper provided by Department of Economics in its series University of Helsinki, Department of Economics with number 442.

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Length: 13 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:helsec:442

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Postal: University of Helsinki; Department of Economics, P.O.Box 54 (Unioninkatu 37) FIN-00014 Helsingin Yliopisto
Phone: +358 9 191 8897
Fax: +358 9 191 8877
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Web page: http://www.helsinki.fi/politiikkajatalous/
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Keywords: RISK AVERSION;

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Cited by:
  1. Pekka Ilmakunnas & Vesa Kanniainen & Uki Lammi, . "Entrepreneurship, Economic Risks, and Risk-Insurance in the Welfare State," EPRU Working Paper Series 99-03, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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