certainty equivalent


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Certainty equivalent

An amount that would be accepted today (risk free) in lieu of a chance to receive a possibly higher, but uncertain, amount.

Certainty Equivalent

A small, zero-risk return an investor may trade for a larger potential return with an associated risk. Companies offer certainty equivalent returns on certain investments and use their demand to determine the level of risk an investor will accept for a given return from the company.

certainty equivalent

The minimum sum of money a person would accept to forgo the opportunity to participate in an event for which the outcome, and therefore his or her receipt of a reward, is uncertain. For example, suppose you are told to draw one card from a full deck of cards. If you draw a red card you win $100 and if you draw a black card you win nothing. If you would accept $40 to forgo the selection and possibility of winning, $40 is the certainty equivalent of the outcome of the event. Certainty equivalents are used in evaluating risk.

certainty equivalent

see DECISION TREE.
References in periodicals archive ?
Thus, I consider the certainty equivalent of the anti-doping setting in which doping is possible and the fight against doping takes place.
Given the optimal doping and training level, the cyclist's certainty equivalent is
The second term is the value of the fund to the investor expressed as a certainty equivalent computed at node (T - 1, j).
Prior to the penultimate set of nodes, however, the hedge fund value is given by the maximum of the certainty equivalent of exercising the liquidity option and the certainty equivalent of staying in the fund.
To value the hedge fund with an m-period notice at node (t, j), we compute the certainty equivalent taking into account the possibility the fund fails over the next m periods.
Our option values are real options computed using utility certainty equivalent values under the real measure.
For such artists the value of their risk-adjustment parameter is a negative number and their certainty equivalent exceeds the expected price appreciation of their art work.
In this section we demonstrate that the FSD and SSD shifts of the distribution function of R unambiguously lower the certainty equivalent interest rate, R
Selden, Larry, "A New Representation of Preferences over |Certain x Uncertain' Consumption Pairs: The Ordinal Certainty Equivalent Hypothesis.