Template-Type: ReDIF-Article 1.0
Author-Name: Valentina V. Tarasova
Author-Email: v.v.tarasova@mail.ru
Author-Workplace-Name: Lomonosov Moscow State University, Moscow 119991, Russia
Author-Name: Vasily E. Tarasov
Author-Email: v.e.tarasov@bk.ru
Author-Workplace-Name: Lomonosov Moscow State University, Moscow 119991, Russia
Title: Risk Aversion for Investors with Memory: Hereditary Generalizations of Arrow-Pratt Measure
Abstract: The paper proposes a generalization of the Arrow-Pratt measures of absolute risk-aversion (ARA) for the case of financial processes with memory. The authors take into account the presence of the investors’memory in the description of their behavior. Standard risk aversion measures, which are defined by derivatives of integer orders, are actually based on the assumption of investors’ amnesia, because these derivatives are determined by the properties of the function only in an infinitesimal neighborhood of the point (point in time or amount of wealth). The authors propose a method that allows them to refuse the assumptions about absence of a memory about changes of the utility function and value of assets. In order to take into account the memory effects the authors used mathematical tools of derivatives (integro-differentiations) of non-integer orders. Formulas of hereditary generalizations.
Classification-JEL: C10, C30
Keywords: investment risks, risk of failure, risk aversion, Arrow-Pratt measure, utility function, investor behavior, memory effect, derivatives of non-integer order
Journal: Finansovyj žhurnal — Financial Journal
Pages: 46-63
Issue: 2
Year: 2017
Month: April
File-URL: http://www.nifi.ru/images/FILES/Journal/Archive/2017/2/statii_2/fm_2017_2_05.pdf
File-Format: Application/pdf
Handle: RePEc:fru:finjrn:170205:p:46-63