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Inner Rate of Risk Aversion (IRRA) and Its Applications to Investment Selection

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  • Yoshio Miyahara

    (Nagoya City University)

Abstract

In this paper we introduce the inner rate of risk aversion (IRRA), which is based on the risk sensitive value measure. And we also introduce the ideas of the scale risk boundary ($$\lambda _{bdry}$$λbdry), the optimal scale ($$\lambda _{opt}$$λopt) and the optimal value ($$V_{opt}$$Vopt). We first construct the rating table of assets based on the IRRA, and then tables of $$\lambda _{bdry}$$λbdry, $$\lambda _{opt}$$λopt and $$V_{opt}$$Vopt. And finally we explain our strategy how to apply those tables to investment selection problems.

Suggested Citation

  • Yoshio Miyahara, 2020. "Inner Rate of Risk Aversion (IRRA) and Its Applications to Investment Selection," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 27(2), pages 193-212, June.
    • Handle: RePEc:kap:apfinm:v:27:y:2020:i:2:d:10.1007_s10690-019-09289-x
    DOI: 10.1007/s10690-019-09289-x
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    References listed on IDEAS

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    1. Robert J. Aumann & Roberto Serrano, 2008. "An Economic Index of Riskiness," Journal of Political Economy, University of Chicago Press, vol. 116(5), pages 810-836, October.
    2. Hodoshima, Jiro & Misawa, Tetsuya & Miyahara, Yoshio, 2018. "Comparison of utility indifference pricing and mean-variance approach under normal mixture," Finance Research Letters, Elsevier, vol. 24(C), pages 221-229.
    3. Jiro Hodoshima, 2019. "Stock performance by utility indifference pricing and the Sharpe ratio," Quantitative Finance, Taylor & Francis Journals, vol. 19(2), pages 327-338, February.
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    Cited by:

    1. Yoshio Miyahara, 2022. "Both Sensitive Value Measure and its Applications," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(2), pages 357-379, June.

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