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| Author: | Zakamouline, V. Koekebakker, S. |
| Title: | A generalisation of the mean-variance analysis |
| Journal: | European Financial Management
2009 : NOV, VOL. 15:5, p. 934-970 |
| Index terms: | statistical methods probability financial performance portfolio investment risk models |
| Language: | eng |
| Abstract: | This paper considers a decision maker (henceforth as: d-m.) whose utility function has a kink at the reference point with different functions below and above this reference point. It is also supposed that the d-m. generally distorts the objective probabilities. It is shown that the expected utility function of this d-m. can be approximated by a function of mean and partial moments of distribution. An expression for a risk premium when risk is small is derived. The analysis shows that a d-m. in this framework exhibits three types of aversions, that is, aversion (here as: avr.) to loss, avr. to uncertainty in gains, and avr. to uncertainty in losses etc. |
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