Journal ArticleDOI
The Efficiency Analysis of Choices Involving Risk
Giora Hanoch,Haim Levy +1 more
TLDR
In this paper, an analysis of the first step of the decision-making process of an individual decision maker among alternative risky ventures is presented, in terms of a single dimension such as money, both for the utility functions and for the probability distributions.Abstract:
Publisher Summary The choice of an individual decision maker among alternative risky ventures may be regarded as a two-step procedure. The decision maker chooses an efficient set among all available portfolios, independently of his tastes or preferences. Then, the decision maker applies individual preferences to this set to choose the desired portfolio. The subject of this chapter is the analysis of the first step. It deals with optimal selection rules that minimize the efficient set by discarding any portfolio that is inefficient in the sense that it is inferior to a member of the efficient set, from point of view of each and every individual, when all individuals' utility functions are assumed to be of a given general class of admissible functions. The analysis presented in the chapter is carried out in terms of a single dimension such as money, both for the utility functions and for the probability distributions. However, the results may easily be extended, with minor changes in the theorems and the proofs, to the multivariate case. The chapter explains a necessary and sufficient condition for efficiency, when no further restrictions are imposed on the utility functions. It presents proofs of the optimal efficiency criterion in the presence of general risk aversion, that is, for concave utility functions.read more
Citations
More filters
Journal Article
A model for the optimal risk management of (farm) firms
TL;DR: In this article, the authors used the Capital Asset Pricing Model (CAPM) to derive an operational criterion for the optimal risk management of firms, which is based on the expected consequences of risk management on relative changes in the variance of return on equity and expected income.
Book ChapterDOI
The Stochastic Dominance Estimation of Default Probability
Mary S. Broske,Haim Levy +1 more
TL;DR: In this paper, the authors present a stochastic dominance technique which can be used to quantify differences in cumulative probability distributions of data, and demonstrate this technique by quantifying the probability of default as assessed by the bond market.
Journal ArticleDOI
Corporate social responsibilities and stock returns: Stochastic dominance approach
Hooi Hooi Lean,Yuan Chang +1 more
TL;DR: Wang et al. as discussed by the authors showed the negative relationship between CSR and stock returns, and the result for CSR firms underperformance could be explained by the inefficiency of stock market in Taiwan, that firms with less limpid financial information, may pro-bably boom the stock price by bluffing sales.
Posted Content
The German Labor Market Miracle Revisited: Risk Elimination in Working Time Accounts
TL;DR: In this article, a specific option from the toolkit of flexible work schedules is shown to reduce unemployment risk over the business cycle, while providing mutual insurance of both employers and employees.
Forwards versus Options for Hedging the Currency Exposure Risk: An Application to International Portfolio Selection
TL;DR: In this article, the authors examined the effectiveness of controlling the currency risk for international diversified mixed asset portfolios via two different hedge instruments, currency forwards and currency options, and concluded that European put in the money options have the potential to substitute the forwards.
References
More filters
Journal ArticleDOI
Capital asset prices: a theory of market equilibrium under conditions of risk*
TL;DR: In this paper, the authors present a body of positive microeconomic theory dealing with conditions of risk, which can be used to predict the behavior of capital marcets under certain conditions.
Journal ArticleDOI
The Utility Analysis of Choices Involving Risk
TL;DR: In this paper, the authors suggest that an important class of reactions of individuals to risk can be rationalized by a rather simple extension of orthodox utility analysis, i.e., individuals frequently must, or can, choose among alternatives that differ, among other things, in the degree of risk to which the individual will be subject.
Journal ArticleDOI
The Existence of Probability Measures with Given Marginals
TL;DR: In this article, the existence of probability distributions with given marginals is studied under typically weaker assumptions, than those which are required by the use of Theorem 1, and necessary and sufficient conditions for a sequence of probability measures to be the sequence of distributions of a martingale, an upper semi-martingale or of partial sums of independent random variables.