English, Article, Journal or magazine article edition: Conditional Value-at-Risk Constraint and Loss Aversion Utility Functions Laetitia Andrieu; Michel De Lara; Babacar Seck

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Bookmark: http://trove.nla.gov.au/version/122760
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Conditional Value-at-Risk Constraint and Loss Aversion Utility Functions
Author
  • Laetitia Andrieu
  • Michel De Lara
  • Babacar Seck
Physical Description
  • preprint
Notes
  • We provide an economic interpretation of the practice consisting in incorporating risk measures as constraints in a classic expected return maximization problem. For what we call the infimum of expectations class of risk measures, we show that if the decision maker (DM) maximizes the expectation of a random return under constraint that the risk measure is bounded above, he then behaves as a ``generalized expected utility maximizer'' in the following sense. The DM exhibits ambiguity with respect to a family of utility functions defined on a larger set of decisions than the original one; he adopts pessimism and performs first a minimization of expected utility over this family, then performs a maximization over a new decisions set. This economic behaviour is called ``Maxmin under risk'' and studied by Maccheroni (2002). This economic interpretation allows us to exhibit a loss aversion factor when the risk measure is the Conditional Value-at-Risk.
  • Risk measures; Utility functions; Nonexpected utility theory; Maxmin; Conditional Value-at-Risk; Loss aversion
  • RePEc:hal:wpaper:hal-00390836_v1
Language
  • English
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