Nondegenerate Intervals of No-Trade Prices for Risk-averse Traders
AbstractNONDEGENERATE INTERVALS OF NO-TRADE PRICES FOR RISK-AVERSE TRADERS ABSTRACT. According to the local risk-neutrality theorem an agent who has the opportunity to invest in an uncertain asset does not buy it or sell it short iff its expected value is equal to its price, independently of the agent’s attitude towards risk. Contrary to that it is shown that, in the context of expected utility theory with differentiable vNM utility function, but without the assumption of stochastic constant returns to scale, nondegenerate intervals of no-trade prices may exist. With a quasiconcave expected utility function they do if, and only if, the agent is risk averse of order one.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 6298.
Date of creation: 1999
Date of revision:
Portfolio choice; Risk aversion of order one; No-trade prices;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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