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Effects of background risks on cautiousness with an application to a portfolio choice problem

Effects of background risks on cautiousness with an application to a portfolio choice problem,10.1016/j.jet.2010.08.005,Journal of Economic Theory,Chi

Effects of background risks on cautiousness with an application to a portfolio choice problem  
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We provide necessary and sufficient conditions on an individual's expected utility function under which any zero-mean idiosyncratic risk increases cautiousness (the derivative of the reciprocal of the absolute risk aversion), which is the key determinant for this individual's demand for options and portfolio insurance.
Journal: Journal of Economic Theory - J ECON THEOR , vol. 146, no. 1, pp. 346-358, 2011
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