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On The Robustness Of The Arrow–Pratt Risk Aversion Measure

In: Efficiency Of Racetrack Betting Markets

Author

Listed:
  • J. G. KALLBERG

    (New York University, New York, NY 10003, USA)

  • W. T. ZIEMBA

    (University of British Columbia, Vancouver, BC, Canada)

Abstract

For portfolio problems with joint normally distributed asset returns, the risk aversion measure R = −w0 (Eu″(w)/Eu′(w)), where w0 is initial wealth can be used to characterize optimality. Comparisons between the global measure R and local measures based on RA = −u″(w)/u′(w) are explored. Simulations for several utility function classes are described.

Suggested Citation

  • J. G. Kallberg & W. T. Ziemba, 2008. "On The Robustness Of The Arrow–Pratt Risk Aversion Measure," World Scientific Book Chapters, in: Donald B Hausch & Victor SY Lo & William T Ziemba (ed.), Efficiency Of Racetrack Betting Markets, chapter 8, pages 41-46, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812819192_0008
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