Decreasing absolute risk aversion : some clarification

Abstract

La Vallée (1968), in the expected utility model, gives a sufficient condition for positivity of the bid-selling spread. In this article, we show that this sufficient condition, namely decreasing absolute risk aversion (DARA) is in fact necessary. Moreover, we prove that the expected utility hypothesis and differentiability of the utility function are not required.DARA, NARA, bid-selling spread, perfect hedging, risk premium.