# 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

, Volume 27 (2) – Jun 28, 2020
20 pages

/lp/springer-journals/inner-rate-of-risk-aversion-irra-and-its-applications-to-investment-fTrCKINLnI
Publisher
Springer Journals
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 MarketsSpringer Journals

Published: Jun 28, 2020

### References

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