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 journalArticlepeer-review

26 Scopus citations


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
StatePublished - Nov 1 2015

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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