Almost expectation and excess dependence notions
(2015) Theory and Decision : an international journal for multidisciplinary advances in decision sciences — Vol. 79, n° 3, p. 375-401 (2015)
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- Abstract
- This paper weakens the expectation dependence concept due to Wright (Theory Decis 22:111–124, 1987) and its higher-order extensions proposed by Li (J Econ Theory 146:372–391, 2011) to conform with the preferences generating the almost stochastic dominance rules introduced in Leshno and Levy (Manag Sci 48:1074–1085, 2002). A new dependence concept, called excess dependence is introduced and studied in addition to expectation dependence. This new concept coincides with expectation dependence at first-degree but provides distinct higher-order extensions. Three applications, to portfolio diversification, to the determination of the sign of the equity premium in the consumption-based CAPM, and to optimal investment in the presence of a background risk, illustrate the usefulness of the approach proposed in the present paper.
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Denuit, M., Huang, R., & Tzeng, L. (2015). Almost expectation and excess dependence notions. Theory and Decision : an international journal for multidisciplinary advances in decision sciences, 79(3), 375-401. https://doi.org/10.1007/s11238-014-9476-6 (Original work published 2015)