IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v7y2007i1n37.html
   My bibliography  Save this article

Decreasing Relative Risk Premium

Author

Listed:
  • Hansen Frank

    (University of Copenhagen)

Abstract

We consider the risk premium demanded by a decision maker in order to be indifferent between obtaining a new level of wealth with certainty, or to participate in a lottery which either results in unchanged wealth or an even higher level than what can be obtained with certainty. We study preferences such that the corresponding relative risk premium is a decreasing function of present wealth, and we determine the set of associated utility functions. We find a new characterization of risk vulnerability and determine a large set of utility functions, closed under summation and composition, which are both risk vulnerable and have decreasing relative risk premium. We finally introduce the notion of partial risk neutral preferences on binary lotteries and show that partial risk neutrality is equivalent to preferences with decreasing relative risk premium.

Suggested Citation

  • Hansen Frank, 2007. "Decreasing Relative Risk Premium," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-31, October.
    • Handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:37
    DOI: 10.2202/1935-1704.1370
    as

    Download full text from publisher

    File URL: https://doi.org/10.2202/1935-1704.1370
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.2202/1935-1704.1370?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:7:y:2007:i:1:n:37. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.