Disparity,Shortfall, and Twice-Endogenous HARA Utility |
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| Authors: | M. Ryan Haley M. Kevin McGee Todd B. Walker |
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| Affiliation: | 1. Department of Economics , University of Wisconsin–Oshkosh , Oshkosh , Wisconsin , USA haley@uwosh.edu;3. Department of Economics , University of Wisconsin–Oshkosh , Oshkosh , Wisconsin , USA;4. Indiana University , Bloomington , Indiana , USA |
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| Abstract: | We derive a mapping between the shortfall-minimizing portfolio selection based on higher-order entropy measures and expected utility theory. We show that the family of HARA utility functions has a minimum-divergence, shortfall-based representation. This facilitates an interpretation in which the risk aversion parameters and the type of risk aversion arise endogenously. We provide a numerical example illustrating this interpretation. |
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| Keywords: | Cressie-Read Endogenous utility Entropy Measure change Shortfall |
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