Effects of Background Risks on Cautiousness with an Application to a Portfolio Choice Problem
We provide a necessary and a sufficient condition on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.
|Date of creation:||Mar 2008|
|Note:||"March 31, 2008" -- Title page|
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