Decreasing downside risk aversion and background risk

In this paper, we show that risk vulnerability can be associated with the concept of downside risk aversion (DRA) and an assumption about its behavior, namely that it is decreasing in wealth. Specifically, decreasing downside risk aversion in the Arrow–Pratt and Ross senses are respectively necessary and sufficient for a zero-mean background risk to raise the aversion to other independent risks.

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Year of publication:	2014
Authors:	Crainich, David ; Eeckhoudt, Louis ; Le Courtois, Olivier
Published in:	Journal of Mathematical Economics. - Elsevier, ISSN 0304-4068. - Vol. 53.2014, C, p. 59-63
Publisher:	Elsevier
Subject:	Downside risk aversion \| Background risk \| Risk vulnerability

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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