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On cross-risk vulnerability

Author

Listed:
  • Yannick Malevergne

    (EM - EMLyon Business School)

  • B. Rey

Abstract

We introduce the notion of cross-risk vulnerability to generalize the concept of risk vulnerability introduced by Gollier and Pratt. While risk vulnerability captures the idea that the presence of an unfair financial background risk should make risk-averse individuals behave in a more risk-averse way with respect to an independent financial risk, cross-risk vulnerability extends this idea to the impact of a non-financial background risk on the financial risk. It provides an answer to the question of the impact of a background risk on the optimal coinsurance rate and on the optimal deductible level. We derive necessary and sufficient conditions for a bivariate utility function to exhibit cross-risk vulnerability both toward an actuarially neutral background risk and toward an unfair background risk.Wealso analyze the question of the sub-additivity of risk premia and show to what extent cross-risk vulnerability provides an answer.

Suggested Citation

  • Yannick Malevergne & B. Rey, 2009. "On cross-risk vulnerability," Post-Print hal-02312539, HAL.
  • Handle: RePEc:hal:journl:hal-02312539
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    Cited by:

    1. Lu Li & Andreas Richter & Petra Steinorth, 2023. "Mental health changes and the willingness to take risks," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 48(1), pages 31-62, March.
    2. Björn Bos & Moritz A. Drupp & Jasper N. Meya & Martin F. Quaas, 2023. "Financial Risk-Taking under Health Risk," CESifo Working Paper Series 10387, CESifo.
    3. Crainich, David & Eeckhoudt, Louis & Le Courtois, Olivier, 2017. "Health and portfolio choices: A diffidence approach," European Journal of Operational Research, Elsevier, vol. 259(1), pages 273-279.
    4. Christophe Courbage & Guillem Montoliu-Montes & Béatrice Rey, 2018. "How vulnerable is risk aversion to wealth, health and other risks? An empirical analysis for Europe," Working Papers halshs-01935846, HAL.
    5. Christophe Courbage & Guillem Montoliu-Montes & Béatrice Rey, 2018. "How vulnerable is risk aversion to wealth, health and other risks? An empirical analysis for Europe," Working Papers 1827, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    6. Stefani Milovanska-Farrington & Stephen Farrington, 2021. "Discipline, risk, and the endogeneity between financial decisionmaking and health," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(4), pages 596-636, October.
    7. David Crainich & Louis Eeckhoudt & Olivier Le Courtois, 2013. "An index of (absolute) correlation aversion: theory and some implications," Working Papers 2013-ECO-12, IESEG School of Management.

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