Risk, Asymmetric ino Flashcards
1
Q
Jensen’s inequality
A
CE(w+x)<U(E(w+x))
2
Q
Definition of risk averseness
A
If at any wealth w and for any lottery l they prefer certainty to lottery then risk averse
3
Q
Expected utility
A
EU=p1U(x1)+p2U(x2)
4
Q
Certainty equivalent
A
CE=EU(x)
5
Q
Risk Premium
A
Minimum acceptable compensation for holding a risky asset
RP=EV-CE
6
Q
Stochastic dominance (risk)
A
if Fx<Gx at every x
7
Q
Measuring spread
A
Must be a mean preserving spread of the one you are dominanting
