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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

certainty equivalent

see DECISION TREE.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
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Therefore, the MCPT certainty equivalent return difference between the constant mix and the guaranteed contracts is even larger in this case.
MULTI CUMULATIVE PROSPECT THEORY AND THE DEMAND FOR CLIQUET-STYLE GUARANTEES
We regress subjects' choice ($0.50 PR or $2.00 WTA payment) on gender, Task-2 performance, Task-l-to-2 performance improvement, Task-2 selfrank, the lottery certainty equivalent, and a task-order dummy.
Do gender-variant preferences for competition persist in the absence of performance?
The closed form solution is characterized by using the certainty equivalent in the team manager's maximization problem.
Professional cycling and the fight against doping
B.4 can be interpreted as the value of demand information because it represents the difference between certainty equivalents in the presence and absence of demand information.
The value of demand information in an insurance market under demand and cost uncertainty
The VW portfolio in table 3 is for [gamma] = 5, we do not show its results for other relative risk aversion because the only value that respond to a variation in [gamma] is the certainty equivalent, which will be shown during the discussion.
Parametric portfolio selection: evaluating and comparing to Markowitz portfolios/Selecao parametrica de portfolios: avaliacao e comparacao com portfolios de Markowitz
We use [H.sub.T-1,j] to express the certainty equivalent of the hedge fund investment at node (T - 1, j), so that the investor is indifferent between staying in the fund at node (T - 1, j) and exchanging for cash equal to [H.sub.T-1,j], which is then deposited in a risk-free account.
Locked up by a lockup: valuing liquidity as a real option
The certainty equivalent rate of return is defined from these in equation (2).
Consumption, wealth, and indebtedness in the context of uncertainty: the consumption function meets Portfolio theory
In that context, Bernoulli unveiled the notion of a certainty equivalent, a guaranteed cash flow that we would accept instead of an uncertain cash flow and argued that more risk averse investors would settle for lower certainty equivalents for a given set of uncertain cash flows than less risk averse investors.
2 Discounted cash flow valuation
The principal minimizes the total expected payments subject to the following constraints: First, agent i receives at least [[theta].sub.i], the certainty equivalent associated with his next best employment opportunity, i.e., the contract is individually rational ([IR.sub.i]).
Aggregation and measurement errors in performance evaluation
Note that Q is nothing but the consumer's certainty equivalent income in the second period.
Proportional income tax and the Ricardian equivalence in a non-expected utility maximizing model
I believe that Karp/Perloff assumption of risk-neutrality imparts a bias to their conclusions.(8) It is a bias that I have tried to avoid by exploiting the concept of certainty equivalent in the decision-making calculus of the market participants.
If art is resold, should the artist profit?

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