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Risk Invulnerability : The Impact Of A Desirable Background Risk, Sai Kit Hui

Lingnan Theses and Dissertations (MPhil & PhD)

I extend the classical risk vulnerability definition proposed by Gollier and Pratt (1996) and suggest a new definition namely risk invulnerability, which is to say a desirable background risk that has a positive mean value exceeding the precautionary saving premium makes a decision maker less risk averse with respect to other independent risk. While the value function used in Milne and Robertson (1996) is comparable to the von Neumann Morgenstern utility function used in risk invulnerability, I follow the literature and show that a corporate under stochastic wealth and threat of liquidation is risk invulnerable when the wealth level of …