IDEAS home Printed from https://ideas.repec.org/a/spr/joecth/v23y2004i2p321-335.html
   My bibliography  Save this article

Background risk and the demand for state-contingent claims

Author

Listed:
  • Guenter Franke
  • Richard Stapleton
  • Marti Subrahmanyam

Abstract

We consider the demand for state-contingent claims, in the presence of an independent zero-mean, non-hedgeable background risk. An agent is defined to be generalized risk averse if he/she chooses a demand function for contingent claims with a smaller slope everywhere, given a simple increase in background risk. We show that the conditions for standard risk aversion, that is positive, declining absolute risk aversion and prudence, are necessary and sufficient for generalized risk aversion. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Guenter Franke & Richard Stapleton & Marti Subrahmanyam, 2004. "Background risk and the demand for state-contingent claims," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 23(2), pages 321-335, January.
    • Handle: RePEc:spr:joecth:v:23:y:2004:i:2:p:321-335
    DOI: 10.1007/s00199-003-0368-1
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s00199-003-0368-1
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s00199-003-0368-1?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.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. George Wong, 2009. "Does the More Risk‐Averse Investor hold a Less Risky Portfolio?," International Review of Finance, International Review of Finance Ltd., vol. 9(3), pages 319-333, September.
    2. Matthias Pelster, 2015. "Marketable and non-hedgeable risk in a duopoly framework with hedging," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(4), pages 697-716, October.
    3. Peter Bardsley & Ingrid Burfurd, 2008. "Contract Design for Biodiversity Procurement," Department of Economics - Working Papers Series 1031, The University of Melbourne.
    4. Huang, Hung-Hsi & Wang, Ching-Ping, 2013. "Portfolio selection and portfolio frontier with background risk," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 177-196.
    5. Mickael Beaud & Marc Willinger, 2015. "Are People Risk Vulnerable?," Management Science, INFORMS, vol. 61(3), pages 624-636, March.
    6. Broll, Udo & Wahl, Jack E., 2011. "Liquidity constrained exporters and trade," Economics Letters, Elsevier, vol. 111(1), pages 26-29, April.
    7. Dana, Rose-Anne & Scarsini, Marco, 2007. "Optimal risk sharing with background risk," Journal of Economic Theory, Elsevier, vol. 133(1), pages 152-176, March.
    8. James Huang & Richard Stapleton, 2017. "Higher-order risk vulnerability," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(2), pages 387-406, February.
    9. Huang, James, 2014. "Convex and decreasing absolute risk aversion is proper," Economics Letters, Elsevier, vol. 125(1), pages 123-125.
    10. Jiang, Chonghui & Ma, Yongkai & An, Yunbi, 2010. "An analysis of portfolio selection with background risk," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3055-3060, December.
    11. Peter Bardsley & Ingrid Burfurd, 2013. "Auctioning contracts for environmental services," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 57(2), pages 253-272, April.
    12. Broll, Udo & Wahl, Jack E., 2009. "Liquidity constrained exporters: Trade and futures hedging," Dresden Discussion Paper Series in Economics 17/09, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    13. repec:dau:papers:123456789/698 is not listed on IDEAS

    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:spr:joecth:v:23:y:2004:i:2:p:321-335. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.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.