Download This PaperRisk Premium and Risk Aversion With Heterogeneous Agents
26 Pages Posted: 6 Mar 2018
Date Written: March 6, 2018
Abstract
With heterogeneity of risk aversion, a representative agent does not exist so both individuals' and aggregate risk premium cannot be expressed by relative/absolute risk aversion. This paper suggests a new way to calculate the risk premium with market contingent-claim prices without the information of utility function.
This analysis helps us understand the heterogeneous and aggregate welfare gain/loss from increased market uncertainty.
Keywords: Heterogeneity, Risk Aversion, Risk Premium, Welfare Cost of Output Fluctuations
JEL Classification: D60, D70, D90
Suggested Citation: Suggested Citation
Dubey, Ram Sewak and Kang, Minwook, Risk Premium and Risk Aversion With Heterogeneous Agents (March 6, 2018). Available at SSRN: https://ssrn.com/abstract=3135212 or http://dx.doi.org/10.2139/ssrn.3135212
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