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1. Introduction
2. Utility theory and mean variance
3. Part I
4. Rationality of utility functions
5. Completeness and reflexivity
6. Transitivity and independence
7. Continuity
8. Dominance
9. Example for rationality criteria
10. Expected utility
11. Violation of rationality criteria
12. Example for violation
13. Application of independence criterion
14. State-dependent and -independent utility functions
15. Summary of part I
16. Part II
17. Utility functions for money
18. Risk aversion
19. Risk neutrality and risk loving
20. Risk premium and insurance premium
21. Definitions
22. Example for insurance premium
23. Illustration of insurance premium
24. Jensen's inequality and Arrow-Pratt's result
25. Absolute risk aversion coefficient
26. Example for absolute coefficient
27. Full Arrow-Pratt's result (1)
28. Full Arrow-Pratt's result (2)
29. Relative risk aversion coefficient
30. Usefullness of two types of coefficients
31. Risk tolerance
32. Broad vs. narrow classification of risk attitudes
33. CARA function
34. Decreasing absolute risk aversion
35. CRRA function
36. Global risk aversion
37. Example for global risk aversion
38. Example of CARA utility and normal distribution
39. Summary of part II
40. Part III
41. Optimal asset allocation
42. Two-fund separation
43. Variance aversion
44. Example with A(x)=2
45. Mean-variance framework
46. Asset allocation and portfolio separation
47. Local risk neutrality
48. Restrictions on preferences
49. CARA and CRRA utilities
50. Changing relative risk aversion
51. Distributional assumptions on asset returns
52. Two-fund separation
53. Summary of part III
54. Conclusions

Topics Covered

• Expected utility representation of preferences
• Rationality criteria
• State independent utility
• Risk averse behavior
• Risk and insurance premium
• Arrow-Pratt's absolute risk aversion coefficient
• Risk aversion and small risk
• Relative risk aversion coefficient
• Risk tolerance
• CARA utility
• CRRA utility
• Risk aversion and large risk
• Utility and variance measures of risk
• Variance aversion and two fund separation
• Local risk neutrality
• Marginal utility and two fund separation
• Factor structure and two fund separation

Links

Series:

• Quantitative Financial Risk Management

Categories:

• Finance, Accounting & Economics

Talk Citation

Publication History

• Published on October 1, 2007
• Archived on April 4, 2022