The banking firm and risk taking in a two-moment decision model

Udo Broll, Xu Guo, Peter Welzel, Wing Keung Wong

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

We analyze a bank's risk taking in a two-moment decision framework. Our approach offers desirable properties like simplicity, intuitive interpretation, and empirical applicability. The bank's optimal behavior to a change in the standard deviation or the expected value of the risky asset's or portfolio's return can be described in terms of risk aversion elasticities, i.e., the sensitivity of the marginal rate of substitution between risk and return. The bank's investment in a risky asset position goes down when the return risk increases, if and only if the risk aversion elasticity exceeds -. 1.

Original languageEnglish (US)
Pages (from-to)275-280
Number of pages6
JournalEconomic Modelling
Volume50
DOIs
StatePublished - Nov 1 2015

Fingerprint

Assets
Risk aversion
Decision model
Elasticity
Risk taking
Banking
Bank risk taking
Risk-return
Standard deviation
Marginal rate of substitution
Expected value
Investment banks
Risk and return
Simplicity

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Broll, Udo ; Guo, Xu ; Welzel, Peter ; Wong, Wing Keung. / The banking firm and risk taking in a two-moment decision model. In: Economic Modelling. 2015 ; Vol. 50. pp. 275-280.
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The banking firm and risk taking in a two-moment decision model. / Broll, Udo; Guo, Xu; Welzel, Peter; Wong, Wing Keung.

In: Economic Modelling, Vol. 50, 01.11.2015, p. 275-280.

Research output: Contribution to journalArticle

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