COMPARING LOCAL RISKS BY ACCEPTANCE AND REJECTION

It is said that risky asset h acceptance dominates risky asset k if any decision maker who rejects the investment in h also rejects the investment in k. While in general acceptance dominance is a partial order, we show that it becomes a complete order if only infinitely short investment time horizon...

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Bibliographic Details
Published in:Mathematical finance 2016-04, Vol.26 (2), p.412-430
Main Author: Schreiber, Amnon
Format: Article
Language:English
Subjects:
acceptance dominance
Economic theory
local risk
risk
risk aversion
Risk management
riskiness
stochastic dominance
Studies
United States
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Summary:It is said that risky asset h acceptance dominates risky asset k if any decision maker who rejects the investment in h also rejects the investment in k. While in general acceptance dominance is a partial order, we show that it becomes a complete order if only infinitely short investment time horizons are considered. Two indices that induce different variants of this order are proposed, absolute acceptance dominance and relative acceptance dominance, and their properties are studied. We then show that many indices of riskiness that are compatible with the acceptance dominance order coincide with our indices in the continuous‐time setup.
ISSN:0960-1627
1467-9965
DOI:10.1111/mafi.12054