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The variance of a truncated random variable and the riskiness of the underlying variables

✍ Scribed by Piet Sercu

Book ID
104299603
Publisher
Elsevier Science
Year
1997
Tongue
English
Weight
860 KB
Volume
20
Category
Article
ISSN
0167-6687

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✦ Synopsis

We start from a variable Β£, which has an unspecified (and possibly even infinite-variance) distribution, and we truncate from above and below with bounds that may linearly depend on a second variable, ~. We investigate how the variance of this truncated variable is affected by a binomial version of the Rotschild-Stiglitz measure of increased riskiness of Β£ or ~. We find that, for most unimodel distributions of ~, such an increase in the riskiness of ~ increases the variance of the truncated Variable. The effect of changed riskiness in ~ is ambiguous.

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