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Power Risk Aversion Utility Functions

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Author Info

  • Danyang Xie

    (International Monetary Fund)

Abstract

This paper introduces a new class of utility function -- the power risk aversion.It is shown that the CRRA and CARA utility functions are both in this class. The implications of the PRA utility functions are explored in the context of growth theory. In particular, it is found that economies facing a common real interest rate do not necessarily grow at the same rates if they start with different levels of capital stock. Thus diversity in growth performance across countries occurs even if these countries have access to perfect international capital markets. Potential applications of the PRA in asset pricing are considered.

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File URL: http://128.118.178.162/eps/if/papers/0207/0207006.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0207006.

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Length: 18 pages
Date of creation: 22 Aug 2002
Date of revision:
Handle: RePEc:wpa:wuwpif:0207006

Note: Type of Document - Acrobat PDF; prepared on PC; to print on HP/PostScript/Franciscan monk; pages: 18; figures: Included
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Web page: http://128.118.178.162

Related research

Keywords: Power Risk Aversion; Growth; Asset Pricing;

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Cited by:
  1. Smith, William T. & Zhang, Qiang, 2007. "Asset pricing with multiplicative habit and power-expo preferences," Economics Letters, Elsevier, vol. 94(3), pages 319-325, March.
  2. Denis Conniffe, 2007. "The Flexible Three Parameter Utility Function," Annals of Economics and Finance, Society for AEF, vol. 8(1), pages 57-63, May.
  3. Denis Conniffe, 2007. "Generalised Means of Simple Utility Functions with Risk Aversion," Economics, Finance and Accounting Department Working Paper Series n1790907.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  4. Bahaji, Hamza, 2012. "De l’évaluation des stock options en « juste valeur » : apport de l’approche comportementale," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/10710, Université Paris-Dauphine.

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