1998
DOI: 10.1006/jeth.1998.2420
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Who Buys and Who Sells Options: The Role of Options in an Economy with Background Risk

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Cited by 108 publications
(54 citation statements)
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“…If we now include a nondegenerate multiplicative risk y, the derived utility v(x) ≡ Eu(x y + z) can be either more risk averse or less risk averse than u(x). For example, letting A z,y (x) denote relative risk aversion in this case 11 , if we restrict the wealth level x, such that A z (xy) ≥ 1, i.e. γ ≥ 1 + z xy ∀x and ∀y, it follows from Franke, et al (2006, Corollary 3), that v(x) will be more risk averse than u(x) for z < 0, i.e.…”
Section: The Effect Of a Multiplicative Background Risk On Portfolio mentioning
confidence: 99%
“…If we now include a nondegenerate multiplicative risk y, the derived utility v(x) ≡ Eu(x y + z) can be either more risk averse or less risk averse than u(x). For example, letting A z,y (x) denote relative risk aversion in this case 11 , if we restrict the wealth level x, such that A z (xy) ≥ 1, i.e. γ ≥ 1 + z xy ∀x and ∀y, it follows from Franke, et al (2006, Corollary 3), that v(x) will be more risk averse than u(x) for z < 0, i.e.…”
Section: The Effect Of a Multiplicative Background Risk On Portfolio mentioning
confidence: 99%
“…This approach includes Franke, Stapleton, andSubrahmanyam (1998, 1999) with their models of background risk. Benninga and Mayshar considered heterogeneous investors, and Campbell and Cochrane (2000) modeled habit persistence-in which investors get used to their current levels of consumption and derive utility only from an increase in consumption beyond those levels.…”
Section: Implied Risk Aversionmentioning
confidence: 99%
“…It is this third effect that has been analysed in the background risk literature, by studying the impact of an independent, zero-mean risk on the demand of an agent for marketable risks. The fact that this third type of effect can have a significant influence in a broad range of problems has been highlighted, for example by Franke, Stapleton and Subrahmanyam (1998) in the case of portfolio demand and Weil (1992) in the case of asset prices. Various papers have analysed the impact of certain types of increases in background risk on the demand for insurance, where the amount of insurance is measured by the coinsurance rate and the deductible (see, for example Eeckhoudt and Kimball (1992) and Meyer and Meyer (1998)).…”
Section: Introductionmentioning
confidence: 99%