Analysis on the assumption of financial risk management net _ to write papers

Write papers Network: Financial risk management has several important assumptions, information asymmetry, no-arbitrage equilibrium, the capital of diminishing marginal utility and risk aversion assumptions, these assumptions have an effect is not isolated, but intertwined, and some seemingly contradictory, below several assumptions about this role and interrelationships of Analysis.

No-arbitrage assumption in line with the assumption of economic man, if rational economic man can know exactly what an asset is undervalued, he had no reason not to arbitrage, driven by the interests, assets, investors will be trading to make the difference. At first glance, no-arbitrage equilibrium is built on the premise of perfect information, only information is completely symmetrical, investors can expect keen to the intrinsic value of each asset, and compared with current prices, which make buying or selling decision-making, however, financial risk management assumptions and recognizing the presence of asymmetric information, this way, the two assumptions gave rise to conflicts. In fact, financial risk management is only a hypothesis if the information is symmetric, then the market is arbitrage-free equilibrium, which is Assuming no arbitrage only the existence of such an act, not that the premise of no-arbitrage equilibrium must be established that the information symmetry, because the premise of no-arbitrage equilibrium, if the market information is symmetric, then the arbitrage makes the market rapid equilibrium, so to invest in an asset can not have any excess returns generated, but also risk management does not exist, therefore, assume financial risk management is to recognize the existence of asymmetric information, it expresses the means that, because of the asymmetry of information, so the financial risk management objective is to minimize the extent of this asymmetry, the use of all available technologies, resources to access and analyze information, investors can maximize the available information, close to the state of symmetric information, the information asymmetry into a symmetric information, risk behavior and then choose, so, although both are risk management assumptions, but they play a role not in isolation, information symmetry is the existence of equilibrium premise, we first assume that asymmetric information, the question arose in response to risk for the information collection, analysis, information asymmetry in the degree of symmetry into a post (can not be completely symmetrical, no-arbitrage equilibrium is only an ideal state, we assume that this premise is the risk management practices should be possible to achieve the no-arbitrage equilibrium), the premise of no-arbitrage equilibrium there, then you can choose to risk behavior, that is, through the implementation of decisions and actions do possible to achieve the no-arbitrage equilibrium.

Diminishing marginal utility of capital and risk aversion hypothesis is closely related to these two assumptions, the risk aversion is the premise of diminishing marginal utility because of diminishing marginal utility, capital of the utility curve showing the shape of the opening down, on any given curve the two point, the effectiveness of these two points are less than the average of the average of the two utility values, which is risk-averse investor's utility function has the nature of diminishing marginal utility and risk aversion risk assuming for our decision-making the basis for utility value determines the rewards and risks of the matching criteria, an investment is worth the investment or whether it is worthwhile to bear the risks depending on the effectiveness of the potential increase in risk is greater than or equal to its potential effectiveness of reduced capital of diminishing marginal utility means that we often use the usual method of analysis of variance of defects, for example, there are two projects A and B, assume that investors' expected return is 300 (Note: This is different from using the average expected return - variance model calculated that the expected returns, we measure the feasibility of an investment is when investors demand compensation for the standard, that should be used or other investors need to pay compensation that is acceptable to distinguish between expected return as a project is favorable, it is psychological expectations of investors, and the weighted average return on the project itself has nothing to do, A project with 60% probability, respectively, to obtain 400 rewards and 40% probability to obtain 200 rewards, B projects are 60% probability received 500 compensation and 40% probability for 100 reward due to investors' expected return is 300 (as opposed to A, B weighted average return, then for A, the 60% probability for 100 excess return, namely the degree of deviation from a favorable direction is 100, with 40% probability to the negative direction of the deviation, the degree of deviation is -100, the total deviation was 0.6 * 100-0.4 * 100 = 20 Similarly, B is the total deviation of 0.6 * 200-0.4 * 200 = 40, obviously, in this way to measure the degree of deviation from the investors always want it to be positive, and the bigger the better, the above results indicate that the project is better than A project B, but if we Assuming that the investor's utility function is √ R (in line with the marginal utility of capital assumption, R on behalf of the rewards a few, then A's expected utility is 17.66, B's expected utility is 17.42, then A is better than B. The reason for draw two opposite conclusion because the variance (or we used here to measure the degree of deviation from the risks of an investment project, we are talking about the effectiveness of reward rather than reward to bring (or even when discussing the utility, but also to capital constant marginal utility of the premise, so the loss of a unit and get a flat pay compensation to the investors can offset the impact, and if the utility from the perspective of understanding that this is not the case, due to the existence of diminishing marginal utility, to be a unit increase in the effectiveness of compensation is less than the loss of pay to reduce the effectiveness of a unit, so the two can not be offset by the introduction of the concept of utility to the risk management assumptions, explain the behavior of risk management guidance should be reward in itself rather than the utility value, From an economic point of view, this is reasonable, the ultimate goal of consumers is to maximize their own utility, investors also the case, only one is achieved through consumption, a benefit is achieved through investment. turn affixed to the free download http://www.hi138.com

In addition, individuals believe that risk management should also add an investment assuming complete portfolio risk into systematic risk and non-systematic risk, systemic risk can not be spread out, we are here talking about risk refers to the systematic risk, no-arbitrage equilibrium is the use of real price and the difference between the theoretical price to obtain excess returns, but the theoretical price is calculated (estimated based on diversification of the investments into the premise, for example, assuming that investment in an asset, the asset's expected rate of return equal to the assets divided by the price of current price changes, ie (P1-P0) / P0 expectations, if an asset is greater than the risk-adjusted risk-free rate of return, that (P1-P0) / P0> R, under the no-arbitrage equilibrium assumption, when it was discovered that the assets, will buy it, which led to the current period of the asset price increases, that is, P0 increased, making the return rate has dropped, the end (P1-P0) / P0 = R, where expected rate of return is adjusted through the β, β is a measure of systematic risk and, therefore, no-arbitrage equilibrium discussed underestimate or overestimate the intrinsic value of the system is built on the basis of risk analysis, we assume the existence of no-arbitrage equilibrium , it indirectly means that our analysis is built on the basis of investment diversification, and assumptions based on risk aversion, investment diversification this assumption is reasonable because the diversification of investment risk is always greater than the individual can not invest risk, so risk averse will choose to invest in diversified natural combination.

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