nep-upt New Economics Papers
on Utility Models and Prospect Theory
Issue of 2010‒04‒24
three papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Spectral Risk Measures: Properties and Limitations By Kevin Dowd; John Cotter; Ghulam Sorwar
  2. How Risky Is the Value at Risk? By Roxana Chiriac; Winfried Pohlmeier
  3. Are Children Decision-Makers Within the Household? By Anyck Dauphin; Abdel-Rahmen El Lahga; Bernard Fortin; Guy Lacroix

  1. By: Kevin Dowd (Centre for Risk and Insurance Studies, Nottingham University Business School); John Cotter (Centre for Financial Markets, School of Business, University College Dublin); Ghulam Sorwar (Nottingham University Business School)
    Abstract: Spectral risk measures (SRMs) are risk measures that take account of user risk-aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.
    Keywords: coherent risk measures, spectral risk measures, exponential utility, power utility
    JEL: G15
    Date: 2010–04–13
    URL: http://d.repec.org/n?u=RePEc:ucd:wpaper:200839&r=upt
  2. By: Roxana Chiriac (University of Konstanz, CoFE); Winfried Pohlmeier (University of Konstanz, CoFE, ZEW, RCEA)
    Abstract: The recent financial crisis has raised numerous questions about the accuracy of value-at-risk (VaR) as a tool to quantify extreme losses. In this paper we present empirical evidence from assessing the out-of-sample performance and robustness of VaR before and during the recent financial crisis with respect to the choice of sampling window, return distributional assumptions and stochastic properties of the underlying financial assets. Moreover we develop a new data driven approach that is based on the principle of optimal combination and that provides robust and precise VaR forecasts for periods when they are needed most, such as the recent financial crisis.
    Keywords: Value at Risk, model risk, optimal forecast combination
    JEL: C21 C5 G28 G32
    Date: 2010–01
    URL: http://d.repec.org/n?u=RePEc:rim:rimwps:07_10&r=upt
  3. By: Anyck Dauphin; Abdel-Rahmen El Lahga; Bernard Fortin; Guy Lacroix
    Abstract: Children are seldom accounted for in household behavioural models. They are usually assumed to have neither the capacity nor the power to influence the household decision process. The literature on collective models has so far incorporated children through the “caring preferences” of their parents [Bourguignon (1999)] or has treated them as household public goods [Blundell et al. (2005)]. This paper seeks to determine whether children of a certain age are decision-makers. We focus on the decision-making process within households composed of two adults and one child of at least 16 years of age living together. We first summarise the main restrictions that have been proposed to test the collective model in the context of multiple decision-makers [Chiappori and Ekeland (2006)]. We also show how a minimal number of decision-makers can be inferred from parametric constraints. Second, we apply these tests on data drawn from a series of U.K. Family Expenditure Surveys. Our results show clear evidence that children aged 16 and more and living with their parents influence the household decision-making process. When the analysis is stratified by age and by gender, our results reveal that it is also the case for children aged between 16 and 21 and for daughters. The collective model is never rejected. <P>Les enfants sont rarement pris en considération dans les modèles de comportement des ménages. On présume généralement qu’ils ne possèdent ni la capacité ni le pouvoir d’influencer le processus décisionnel du ménage. La littérature portant sur les modèles collectifs a, jusqu’à maintenant, intégré les enfants par le truchement des « préférences altruistes » de leurs parents [Bourguignon (1999)] ou les a traités comme des biens publics des ménages [Blundell et al. (2005)]. Le présent document tente de déterminer si les enfants d’un certain âge jouent un rôle décisionnel. Nous mettons l’accent sur le processus de prise de décision au sein des ménages composés de deux adultes et d’un enfant âgé d’au moins 16 ans vivant ensemble. Nous résumons d’abord les principales restrictions qui ont été proposées pour tester le modèle collectif dans le contexte de décideurs multiples [Chiappori et Ekeland (2006)]. Nous montrons aussi que les contraintes paramétriques laissent supposer un nombre minimal de décideurs. Ensuite, nous appliquons ces tests aux données extraites d’une série de sondages sur les dépenses des familles au Royaume-Uni. Nos résultats fournissent l’évidence que les enfants âgés de 16 ans et plus vivant avec leurs parents influencent le processus décisionnel du ménage. Lorsque l’analyse est stratifiée selon l’âge et le genre, nos résultats révèlent qu’il en est de même pour les enfants âgés entre 16 et 21 ans, filles ou garçons. Le modèle collectif n’est jamais rejeté.
    Keywords: intra-household allocation, collective household models, children, demand analysis, Pareto efficiency, rank tests. , allocation intra-ménage, modèles collectifs de ménages, enfants, analyse de la demande, efficacité parétienne, tests de classement.
    JEL: D11 D12 D79 J13
    Date: 2010–04–01
    URL: http://d.repec.org/n?u=RePEc:cir:cirwor:2010s-17&r=upt

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