The demand for a risky asset in the presence of a background risk

• 成果类型: Article
• 署名作者: Li, Jingyuan
• 署名单位: Huazhong University of Science & Technology
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2010.10.011
• 发表日期: 2011
• 页码: 372-391
• 关键词: Risky asset; background risk; Expectation dependence

摘要

We examine the demand for a risky asset in the presence of two risks: a financial risk and a background risk which need not be financial. First, we compute the necessary and sufficient condition for a positive demand for a risky asset, showing that it depends on two terms capturing respectively the direct effect of risk premium and the dependence between the two risks. Second, we develop higher order expectation dependence concept and show that the more information about the sign of higher cross derivatives of the utility function we have, the weaker dependence conditions on distribution we achieve. (C) 2010 Elsevier Inc. All rights reserved.