Hedging-based utility risk measure customized for individual investors |
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Institution: | 1. School of Mathematics, Harbin Institute of Technology, Harbin, China;2. Department of Finance, Southern University of Science and Technology, Shenzhen, China |
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Abstract: | This paper proposes a hedging-based utility risk measure (HBU) customized for individual investors requiring a comprehensive risk assessment for financial products. We show that HBU is a convex risk measure and if the utility has constant relative risk aversion, HBU is coherent. Roughly speaking, HBU is the opposite of a generalized utility indifference price and it depends on claimants' utility and hedging instruments accessible to them. We present HBU's qualities and provide two examples, explaining HBU's relevance. |
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Keywords: | Risk measures Personalized risk measures Hedging risk Utility indifference prices |
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