In general, the Markowitz measure of a risk premium is superior for large or asymmetric risks

Markowitz premium is an exact measures whereas the AP measure isapproximate•AP is an accurate approximation if–The gamble’s payoffs is relatively small relative to initial wealth.–The gamble’s payoffs is symmetric.•The accuracy of the AP measures decreases in the size of the gamble andits asymmetry•In general, the Markowitz measure of risk premium is superior for largeand asymmetric risks.•However, the definition using AP is useful for distinguishing betweenvarious types of concave utility functions.