Expected utility functions are limited to second-order (conditional) risk aversion, while non-expected utility functions can exhibit either …rst-order or second-order (conditional) risk aversion. We extend the concept of orders of conditional risk aversion to orders of conditional dependent risk aversion. We show that …rst-order conditional dependent risk aversion is consistent with the framewo...

Different models of capital exchange among economic agents have been proposed recently trying to explain the emergence of Pareto’s wealth power law distribution. One important factor to be considered is the existence of risk aversion. In this paper we study a model where agents posses different levels of risk aversion, going from uniform to a random distribution. In all cases the risk aversion ...

Risk aversion is a key element of utility maximizing hedge strategies; however, it has typically been assigned an arbitrary value in the literature. This paper instead applies a GARCH-in-Mean (GARCH-M) model to estimate a time-varying measure of risk aversion that is based on the observed risk preferences of energy hedging market participants. The resulting estimates are applied to derive expli...

We investigate a representative agent consumption-based asset pricing model with two states: low risk aversion and high risk aversion. We explore whether there is a reasonable parameterization capable of generating the empirically observed seasonally-varying equity and Treasury returns documented by Kamstra, Kramer, and Levi (2008). Calibrating the asset-pricing model to observed consumption da...

This paper examines how aversion to risk and aversion to intertemporal substitution determine the strength of the precautionary saving motive in a two-period model with Selden/Kreps-Porteus preferences. For small risks, we derive a measure of the strength of the precautionary saving motive which generalizes the concept of "prudence" introduced by Kimball (1990b). For large risks, we show that d...