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Nondegenerate Intervals of No-Trade Prices for Risk-averse Traders

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  • Weinrich, Gerd

Abstract

NONDEGENERATE INTERVALS OF NO-TRADE PRICES FOR RISK-AVERSE TRADERS ABSTRACT. According to the local risk-neutrality theorem an agent who has the opportunity to invest in an uncertain asset does not buy it or sell it short iff its expected value is equal to its price, independently of the agent’s attitude towards risk. Contrary to that it is shown that, in the context of expected utility theory with differentiable vNM utility function, but without the assumption of stochastic constant returns to scale, nondegenerate intervals of no-trade prices may exist. With a quasiconcave expected utility function they do if, and only if, the agent is risk averse of order one.

Suggested Citation

  • Weinrich, Gerd, 1999. "Nondegenerate Intervals of No-Trade Prices for Risk-averse Traders," MPRA Paper 6298, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6298
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    File URL: https://mpra.ub.uni-muenchen.de/6298/1/MPRA_paper_6298.pdf
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    References listed on IDEAS

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    1. repec:cup:apsrev:v:72:y:1978:i:04:p:1341-1356_15 is not listed on IDEAS
    2. Loosemore, John & Hanby, Victor J., 1971. "The Theoretical Limits of Maximum Distortion: Some Analytic Expressions for Electoral Systems," British Journal of Political Science, Cambridge University Press, vol. 1(04), pages 467-477, October.
    3. repec:cup:apsrev:v:77:y:1983:i:01:p:123-141_24 is not listed on IDEAS
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    More about this item

    Keywords

    Portfolio choice; Risk aversion of order one; No-trade prices;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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