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Decreasing absolute risk aversion : some clarification

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    Abstract

    La Vallée (1968), in the expected utility model, gives a sufficient condition for positivity of the bid-selling spread. In this article, we show that this sufficient condition, namely decreasing absolute risk aversion (DARA) is in fact necessary. Moreover, we prove that the expected utility hypothesis and differentiability of the utility function are not required.

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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2008/B08024.pdf
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    Bibliographic Info

    Paper provided by Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne in its series Documents de travail du Centre d'Economie de la Sorbonne with number b08024.

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    Length: 7 pages
    Date of creation: Mar 2008
    Date of revision:
    Handle: RePEc:mse:cesdoc:b08024

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    Keywords: DARA; NARA; Bid-selling spread; perfect hedging; risk premium.;

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    Cited by:
    1. Alain Chateauneuf & Caroline Ventura, 2009. "The no-trade interval of Dow and Werlang : some clarifications," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00442861, HAL.

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