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Decreasing absolute risk aversion : some clarification

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Abstract

La Vallée (1968), in the expected utility model, gives a sufficient condition for positivity of the bid-selling spread. In this article, we show that this sufficient condition, namely decreasing absolute risk aversion (DARA) is in fact necessary. Moreover, we prove that the expected utility hypothesis and differentiability of the utility function are not required.

Suggested Citation

  • Moez Abouda, 2008. "Decreasing absolute risk aversion : some clarification," Documents de travail du Centre d'Economie de la Sorbonne b08024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:b08024
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2008/B08024.pdf
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    Cited by:

    1. Chateauneuf, Alain & Ventura, Caroline, 2010. "The no-trade interval of Dow and Werlang: Some clarifications," Mathematical Social Sciences, Elsevier, vol. 59(1), pages 1-14, January.

    More about this item

    Keywords

    DARA; NARA; Bid-selling spread; perfect hedging; risk premium.;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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