Economics and Finance of Risk and of the Future
This book uses real-world examples to show how individual and collective risks can be blended and treated in a reliable decision-making framework that draws its inspiration from decision theory and market based mechanisms. It then goes into deeper detail by looking at the implications of having to face risks (a) where some kind of probabilistic description is available and (b) where none is available, using the example of insurable risks vs non-insurable risks. Again, by using real-world examples it shows how decision-makers can cope with such situations by a proper understanding and use of modern financial techniques.
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agents allocation arbitrage assume assumptions axiom behaviours CAPM cardinal utility Chapter characterised commodity comonotonic complete market consequences considered constraints consumption contingent controversies converges correlated criterion damages decision problem decision theory decision-maker decision-maker’s default defined depend discount dynamic economic equilibrium model equivalent example expected utility expiration date financial assets financial markets firms formalised formation cost formula Furthermore future given hedge instruments insurance companies insurance contracts integral interest rates investment large numbers law of large losses lottery market prices market risk marketed assets mean value measure methods Millau viaduct node observed obtained option Pareto efficient payoffs portfolio possible preference order present probability distribution public project random variables rate of return relevant replicated represented risk aversion risk increases risk premium risk-adjusted riskless rate satisfied social social welfare function static stochastic dominance strictly preferred theorem traded uncertain uncertainty utility function valuation variance yields zero