Short-Term Investments and Indices of Risk
Theoretical Economics (Forthcoming)
39 Pages Posted: 6 Sep 2019 Last revised: 13 Nov 2019
Date Written: November 13, 2019
We study various decision problems regarding short-term investments in risky assets whose returns evolve continuously in time. We show that in each problem, all risk-averse decision makers have the same (problem-dependent) ranking over short- term risky assets. Moreover, in each of these problems, the ranking is represented by the same risk index as in the case of CARA utility agents and normally distributed risky assets.
Keywords: Indices of riskiness, risk aversion, local risk, Wiener process
JEL Classification: D81, G32
Suggested Citation: Suggested Citation