Details
| Original language | English |
|---|---|
| Pages (from-to) | 77-94 |
| Number of pages | 18 |
| Journal | Risk management |
| Volume | 20 |
| Issue number | 1 |
| Early online date | 31 Oct 2017 |
| Publication status | Published - Feb 2018 |
Abstract
With multiple additive risks, the mean-variance approach and the expected utility approach of risk preferences are compatible if all attainable distributions belong to the same location-scale family. Under this proviso, we survey existing results on the parallels of the two approaches with respect to risk attitudes, the changes thereof, and the comparative statics for simple, linear choice problems under risks. In mean-variance approach all effects can be couched in terms of the marginal rate of substitution between mean and variance. We provide some simple proofs of some previous results. We apply the theory we stated or developed in our paper to study the behavior of banking firm and study risk-taking behavior with background risk in the mean-variance model.
Keywords
- Background risk, Expected utility approach, Location-scale family, Mean-variance model, Multiple additive risks
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Business and International Management
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
- Business, Management and Accounting(all)
- Strategy and Management
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In: Risk management, Vol. 20, No. 1, 02.2018, p. 77-94.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - The two-moment decision model with additive risks
AU - Guo, Xu
AU - Wagener, Andreas
AU - Wong, Wing Keung
AU - Zhu, Lixing
PY - 2018/2
Y1 - 2018/2
N2 - With multiple additive risks, the mean-variance approach and the expected utility approach of risk preferences are compatible if all attainable distributions belong to the same location-scale family. Under this proviso, we survey existing results on the parallels of the two approaches with respect to risk attitudes, the changes thereof, and the comparative statics for simple, linear choice problems under risks. In mean-variance approach all effects can be couched in terms of the marginal rate of substitution between mean and variance. We provide some simple proofs of some previous results. We apply the theory we stated or developed in our paper to study the behavior of banking firm and study risk-taking behavior with background risk in the mean-variance model.
AB - With multiple additive risks, the mean-variance approach and the expected utility approach of risk preferences are compatible if all attainable distributions belong to the same location-scale family. Under this proviso, we survey existing results on the parallels of the two approaches with respect to risk attitudes, the changes thereof, and the comparative statics for simple, linear choice problems under risks. In mean-variance approach all effects can be couched in terms of the marginal rate of substitution between mean and variance. We provide some simple proofs of some previous results. We apply the theory we stated or developed in our paper to study the behavior of banking firm and study risk-taking behavior with background risk in the mean-variance model.
KW - Background risk
KW - Expected utility approach
KW - Location-scale family
KW - Mean-variance model
KW - Multiple additive risks
UR - http://www.scopus.com/inward/record.url?scp=85032696164&partnerID=8YFLogxK
U2 - 10.1057/s41283-017-0028-6
DO - 10.1057/s41283-017-0028-6
M3 - Article
AN - SCOPUS:85032696164
VL - 20
SP - 77
EP - 94
JO - Risk management
JF - Risk management
SN - 1460-3799
IS - 1
ER -