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A Possibilistic Approach to Risk Premium

Irina Georgescu, A Possibilistic Approach to Risk Premium. 3, 2008.

Abstract:

Risk aversion, one of the central themes in risk theory is traditionally treated by probabilistic methods. Possibilistic theory is an alternative to the probabilistic modelling, which it replaces when we study uncertain situations for which we do not have enough data.

The purpose of this paper is to propose a possibilistic approach to risk aversion. Probabilistic distributions are replaced with fuzzy numbers, and the probabilistic indicators (mean value, variance, etc.) can be replaced with probabilistic indicators.

In this paper there is introduced the possibilistic risk premium, notion which expresses the risk aversion of an agent. By means of a new indicator of possibilistic variance, there is established a formula for the calculation of the possibilistic risk premium. In the formula there appears the Arrow-Pratt index in a way similar to the probabilistic evaluation of the risk aversion.

There is proved a Pratt-type probabilistic theorem, by which the possibilistic risk aversions of two agents are compared.


BibTeX entry:

@TECHREPORT{tGeorgescu08f,
  title = {A Possibilistic Approach to Risk Premium},
  author = {Georgescu, Irina},
  number = {3},
  year = {2008},
  keywords = {possibilistic distribution, possibilistic indicators, possibilistic risk premium, possibilistic Pratt theorem},
}

Belongs to TUCS Research Unit(s): Other

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