Catastrophe Aversion and Risk Equity under Dependent Risks
نویسندگان
چکیده
Catastrophe aversion and risk equity are important concepts in both risk management theory and practice. Keeney (1980) was the first to formally define these concepts. He demonstrated that the two concepts are always in conflict. Yet this result is based on the assumption that individual risks are independent and has thus limited relevance for real world catastrophic events. We extend Keeney’s result to dependent risks and derive the conditions under which more correlation and more equity between two risks induces a more catastrophic situation. We then generalize some of the results for multiple correlated risks.
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