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arXiv · 1908.00445

The interest rate for saving as a possibilistic risk

Irina Georgescu·Jani Kinnunen
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Abstract

In the paper there is studied an optimal saving model in which the interest-rate risk for saving is a fuzzy number. The total utility of consumption is defined by using a concept of possibilistic expected utility. A notion of possibilistic precautionary saving is introduced as a measure of the variation of optimal saving level when moving from a sure saving model to a possibilistic risk model. A first result establishes a necessary and sufficient condition that the presence of a possibilistic interest-rate risk generates an extra-saving. This result can be seen as a possibilistic version of a Rothschilld and Stiglitz theorem on a probabilistic model of saving. A second result of the paper studies the variation of the optimal saving level when moving from a probabilistic model (the interest-rate risk is a random variable) to a possibilistic model (the interest-rate risk is a fuzzy number).

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Irina Georgescu, Jani Kinnunen. 2019-07-22. The interest rate for saving as a possibilistic risk. https://doi.org/10.1016/j.physa.2020.124460

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