Utility Functions of Equivalent Form and the Effect of Parameter Changes on Optimum Decision Making
AbstractWe derive a class of utility functions that are equivalent with respect to a well-defined functional form. We study the case of constant relative risk aversion (of some order) to investigate on different equivalence relations in order to determine the, possibly infinite, number of equivalence classes when utility functions satisfy a specific form. Then we apply our results to standard applications in economics and finance, for example, to the effect of price volatility on optimum hedging. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 02/06.
Date of creation: 2006
Date of revision:
equivalence class; risk aversion; sensitivity analysis;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Miles S. Kimball, 1991.
"Standard Risk Aversion,"
NBER Technical Working Papers
0099, National Bureau of Economic Research, Inc.
- Stiglitz, Joseph E, 1969.
"The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking,"
The Quarterly Journal of Economics,
MIT Press, vol. 83(2), pages 263-83, May.
- Joseph E. Stiglitz, 1968. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk Taking," Cowles Foundation Discussion Papers 248, Cowles Foundation for Research in Economics, Yale University.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
- Robert Chambers & Rolf Färe & John Quiggin, 2004. "Jointly radial and translation homothetic preferences: generalized constant risk aversion," Economic Theory, Springer, vol. 23(3), pages 689-699, March.
- Chew, Hong Soo & Herk, Leonard F., 1996. "Incremental Risk Aversion and Diversification Preference," Journal of Economic Theory, Elsevier, vol. 70(1), pages 180-200, July.
- Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1995. "Indirect hedging of exchange rate risk," Journal of International Money and Finance, Elsevier, vol. 14(5), pages 667-678, October.
- Broll, Udo & Wahl, Jack E. & Zilcha, Itzhak, 1999. "Hedging exchange rate risk: The multiperiod case," Research in Economics, Elsevier, vol. 53(4), pages 365-380, December.
- Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
- Eckwert, Bernhard, 1993. "Allocative effects of financial assets and the long run neutrality of money when markets are incomplete," European Economic Review, Elsevier, vol. 37(1), pages 75-95, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.