On Cross Risk Vulnerability

15 Pages Posted: 8 Dec 2005

See all articles by Yannick Malevergne

Yannick Malevergne

Université Paris I Panthéon-Sorbonne - Laboratoire PRISM

Béatrice Rey

University of Lyon 1 - ISFA Graduate School of Actuarial Science

Date Written: November 2005

Abstract

We introduce the notion of cross-risk vulnerability which generalizes to the case of one risk in the presence of another non-insurable risk the concept of risk vulnerability introduced by Gollier and Pratt 1996 to deal with the univariate situation. We provide necessary and sufficient conditions for a bivariate utility function to exhibit cross-risk vulnerability both toward an actuarially neutral background risk and toward an unfair background risk. We also present several examples of families of bivariate utility functions which enjoy the desirable property of cross-risk vulnerability.

Keywords: Risk aversion, Risk vulnerability, Multivariate risk, Background risk

JEL Classification: D81

Suggested Citation

Malevergne, Yannick and Rey, Beatrice, On Cross Risk Vulnerability (November 2005). Available at SSRN: https://ssrn.com/abstract=868441 or http://dx.doi.org/10.2139/ssrn.868441

Yannick Malevergne (Contact Author)

Université Paris I Panthéon-Sorbonne - Laboratoire PRISM ( email )

17 rue de la Sorbonne
Paris, 75005
France

HOME PAGE: http://perso.univ-paris1.fr/ymalevergn

Beatrice Rey

University of Lyon 1 - ISFA Graduate School of Actuarial Science ( email )

50, Avenue Tony Garnier
Lyon Cedex 07, 69366
France