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Inner Rate of Risk Aversion (IRRA) and Its Applications to Investment Selection

Inner Rate of Risk Aversion (IRRA) and Its Applications to Investment Selection In this paper we introduce the inner rate of risk aversion (IRRA), which is based on the risk sensitive value measure. And we also introduce the ideas of the scale risk boundary (λbdry\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{bdry}$$\end{document}), the optimal scale (λopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{opt}$$\end{document}) and the optimal value (Vopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$V_{opt}$$\end{document}). We first construct the rating table of assets based on the IRRA,and then tables of λbdry\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{bdry}$$\end{document},λopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{opt}$$\end{document} and Vopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$V_{opt}$$\end{document}.And finally we explain our strategy how to apply those tables to investment selection problems. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Financial Markets Springer Journals

Inner Rate of Risk Aversion (IRRA) and Its Applications to Investment Selection

Miyahara, Yoshio
Asia-Pacific Financial Markets , Volume 27 (2) – Jun 28, 2020
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20 pages

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Publisher
Springer Journals
Copyright
Copyright © Springer Japan KK, part of Springer Nature 2019
Subject
Finance; Finance, general; Macroeconomics/Monetary Economics//Financial Economics; International Economics; Econometrics; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
1387-2834
eISSN
1573-6946
DOI
10.1007/s10690-019-09289-x
Publisher site
See Article on Publisher Site

Abstract

In this paper we introduce the inner rate of risk aversion (IRRA), which is based on the risk sensitive value measure. And we also introduce the ideas of the scale risk boundary (λbdry\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{bdry}$$\end{document}), the optimal scale (λopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{opt}$$\end{document}) and the optimal value (Vopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$V_{opt}$$\end{document}). We first construct the rating table of assets based on the IRRA,and then tables of λbdry\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{bdry}$$\end{document},λopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$\lambda _{opt}$$\end{document} and Vopt\documentclass[12pt]{minimal}\usepackage{amsmath}\usepackage{wasysym}\usepackage{amsfonts}\usepackage{amssymb}\usepackage{amsbsy}\usepackage{mathrsfs}\usepackage{upgreek}\setlength{\oddsidemargin}{-69pt}\begin{document}$$V_{opt}$$\end{document}.And finally we explain our strategy how to apply those tables to investment selection problems.

Journal

Asia-Pacific Financial Markets – Springer Journals

Published: Jun 28, 2020

References

  • An economic index of riskiness
    Aumann, RJ; Serrano, R
  • Valuation of Hong Kong REIT based on risk sensitive value measure method
    Ban, R; Misawa, T; Miyahara, Y
  • Stock performance by utility indifference pricing and Sharp ratio
    Hodoshima, J
  • Comparison of utility indifference pricing and mean-variance approach under normal mixture
    Hodoshima, J; Misawa, T; Miyahara, Y
  • Real option approach to evaluation of plant maintenance strategies based on the controlled Markov process
    Miwa, M; Miyahara, Y
  • Risk-sensitive value measure method for projects evaluation
    Miyahara, Y