Comparing Local Risks by Acceptance and Rejection

19 Pages Posted: 10 Mar 2016

See all articles by Amnon Schreiber

Amnon Schreiber

Hebrew University of Jerusalem; Bar-Ilan University - Department of Economics

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Date Written: April 2016

Abstract

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.

Keywords: riskiness, risk, risk aversion, local risk, acceptance dominance, stochastic dominance

Suggested Citation

Schreiber, Amnon, Comparing Local Risks by Acceptance and Rejection (April 2016). Mathematical Finance, Vol. 26, Issue 2, pp. 412-430, 2016, Available at SSRN: https://ssrn.com/abstract=2745637 or http://dx.doi.org/10.1111/mafi.12054

Amnon Schreiber (Contact Author)

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel

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