Abstract In this paper, we analyze how tail risk impacts both asset prices and the optimal allocation. For purpose, consider an equilibrium model with investors exhibiting empirically well-justifiable decreasing relative aversion (DRRA) different investment horizons. contrast to seminal CAPM, two fund separation does no longer hold, not only regard one measure such as standard deviation but add...

Abstract We develop a simple flexible-price model of business cycles driven by spikes in risk premiums. Aggregate shocks increase firms’ uninsurable idiosyncratic and raise show that can create quantitatively plausible recessions, with contractions employment, consumption, investment. Business are inefficient—output, consumption fall too much during compared to the constrained-efficient allocat...

Risk aversion is one of the main themes in risk theory. Risk theory is treated usually by probability theory. The aim of this paper is to propose an approach of the risk aversion by possibility theory initiated by Zadeh in 1978 as an alternative of probability theory in the modeling of uncertain situations. The main notions studied in this paper are the possibilistic risk premium and the possib...

We study risk and return on farm and non-farm business enterprises in village economies. A risk-sharing benchmark predicts that only aggregate covariate risk contributes to the risk premium. An autarky benchmark predicts that overall fluctuation, idiosyncratic plus aggregate, is the only concern. Empirical findings from semi-urban and rural Thai households with extensive family networks quantif...