Details
| Original language | English |
|---|---|
| Pages (from-to) | 227-230 |
| Number of pages | 4 |
| Journal | Operations research letters |
| Volume | 38 |
| Issue number | 3 |
| Early online date | 6 Feb 2010 |
| Publication status | Published - May 2010 |
Abstract
We analyze the comparative static effects of beneficial changes in the dependence structure between risks. In a quasi-linear decision model with an endogenous risk and a dependent background risk, a mean-variance decision maker will choose a lower level of risky activities upon an increase in the coefficient of correlation of the risks if, and only if, the elasticity of risk aversion is larger than -0.5. For elliptical distributions, the elasticity condition is equivalent to relative prudence being smaller than 1.
Keywords
- Concordance order, Correlation, Elasticity of risk aversion, Prudence
ASJC Scopus subject areas
- Computer Science(all)
- Software
- Decision Sciences(all)
- Management Science and Operations Research
- Engineering(all)
- Industrial and Manufacturing Engineering
- Mathematics(all)
- Applied Mathematics
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In: Operations research letters, Vol. 38, No. 3, 05.2010, p. 227-230.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Beneficial changes in dependence structures and two-moment decision models
AU - Eichner, Thomas
AU - Wagener, Andreas
PY - 2010/5
Y1 - 2010/5
N2 - We analyze the comparative static effects of beneficial changes in the dependence structure between risks. In a quasi-linear decision model with an endogenous risk and a dependent background risk, a mean-variance decision maker will choose a lower level of risky activities upon an increase in the coefficient of correlation of the risks if, and only if, the elasticity of risk aversion is larger than -0.5. For elliptical distributions, the elasticity condition is equivalent to relative prudence being smaller than 1.
AB - We analyze the comparative static effects of beneficial changes in the dependence structure between risks. In a quasi-linear decision model with an endogenous risk and a dependent background risk, a mean-variance decision maker will choose a lower level of risky activities upon an increase in the coefficient of correlation of the risks if, and only if, the elasticity of risk aversion is larger than -0.5. For elliptical distributions, the elasticity condition is equivalent to relative prudence being smaller than 1.
KW - Concordance order
KW - Correlation
KW - Elasticity of risk aversion
KW - Prudence
UR - http://www.scopus.com/inward/record.url?scp=77949918252&partnerID=8YFLogxK
U2 - 10.1016/j.orl.2010.02.002
DO - 10.1016/j.orl.2010.02.002
M3 - Article
AN - SCOPUS:77949918252
VL - 38
SP - 227
EP - 230
JO - Operations research letters
JF - Operations research letters
SN - 0167-6377
IS - 3
ER -