On Increasing Risk, Inequality and Poverty Measures: Peacocks and Lyrebirds and Exotic Options

37 Pages Posted: 3 Jul 2014 Last revised: 13 Feb 2015

See all articles by Christian Oliver Ewald

Christian Oliver Ewald

University of Glasgow; Høgskole i Innlandet

Marc Yor

Université Paris VI Pierre et Marie Curie

Date Written: February 12, 2015

Abstract

We extend the Rothschild and Stiglitz (1970, 1971) notion of increasing risk to families of random variables and in this way link their approach to the concept of stochastic processes which are increasing in the convex order. These processes have been introduced in seminal work by Strassen (1965), Doob (1968) and Kellerer (1972), who showed that such processes have the same marginals as a martingale. In fact, we demonstrate that their results include the results of Rothschild and Stiglitz as a special case. Further, we show that it makes sense to look at a larger class of processes, which we refer to as lyrebirds. We also show how these processes link up with the concept of second order stochastic dominance and are helpful in studying the dynamics of inequality and poverty measures. Further applications discussed include geometric and hyperbolic discounting, exotic derivatives and real options.

Keywords: increasing risk, inequality, poverty measures, peacocks

JEL Classification: C61, D63, G12, G13

Suggested Citation

Ewald, Christian Oliver and Yor, Marc, On Increasing Risk, Inequality and Poverty Measures: Peacocks and Lyrebirds and Exotic Options (February 12, 2015). Available at SSRN: https://ssrn.com/abstract=2461595 or http://dx.doi.org/10.2139/ssrn.2461595

Christian Oliver Ewald (Contact Author)

University of Glasgow ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

Høgskole i Innlandet ( email )

Lillehammer, 2624
Norway

Marc Yor

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
145
Abstract Views
1,244
Rank
362,717
PlumX Metrics