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Possibilistic investment models with background risk

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  • Irina Georgescu

Abstract

In the study of investment problem, aside from the investment risk the background risk appears. Both the investment risk and the background risk are probabilistically described by random variables. This paper starts from the hypothesis that the two types of risk can be represented both probabilistically (by random variables) and possibilistically (by fuzzy numbers). We will study three models in which the investment risk and the background risk can be: fuzzy numbers, a random variabl-a fuzzy number and a fuzzy number-a random variable. A portfolio problem is formulated for each model and an approximate calculation formula of the optimal solution is proved.

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  • Irina Georgescu, 2018. "Possibilistic investment models with background risk," Papers 1901.10556, arXiv.org.
    • Handle: RePEc:arx:papers:1901.10556
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    References listed on IDEAS

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    1. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
    3. Doherty, Neil A & Schlesinger, Harris, 1983. "Optimal Insurance in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1045-1054, December.
    4. L. Eeckhoudt & C. Gollier & H. Schlesinger, 2005. "Economic and financial decisions under risk," Post-Print hal-00325882, HAL.
    5. Georgescu, Irina, 2008. "Possibilistic Risk Aversion," Working Papers 476, IAMSR, Åbo Akademi.
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