Arbeitspapier
Dynamically consistent alpha-maxmin expected utility
The alpha-maxmin model is a prominent example of preferences under Knightian uncertainty as it allows to distinguish ambiguity and ambiguity attitude. These preferences are dynamically inconsistent for nontrivial versions of ». In this paper, we derive a recursive, dynamically consistent version of the »-maxmin model. In the continuous-time limit, the resulting dynamic utility function can be represented as a convex mixture between worst and best case, but now at the local, infinitesimal level. We study the properties of the utility function and provide an Arrow- Pratt approximation of the static and dynamic certainty equivalent. We derive a consumption-based capital asset pricing formula and study the implications for derivative valuation under indifference pricing.
- Language
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Englisch
- Bibliographic citation
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Series: Center for Mathematical Economics Working Papers ; No. 593
- Classification
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Wirtschaft
Mathematical Methods; Programming Models; Mathematical and Simulation Modeling: General
Criteria for Decision-Making under Risk and Uncertainty
Micro-Based Behavioral Economics: General‡
- Subject
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Dynamic consistency
alpha-maxmin expected utility
Knightian uncertainty
ambiguity attitude
- Event
-
Geistige Schöpfung
- (who)
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Beißner, Patrick
Lin, Qian
Riedel, Frank
- Event
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Veröffentlichung
- (who)
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Bielefeld University, Center for Mathematical Economics (IMW)
- (where)
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Bielefeld
- (when)
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2017
- Handle
- URN
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urn:nbn:de:0070-pub-29304362
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Beißner, Patrick
- Lin, Qian
- Riedel, Frank
- Bielefeld University, Center for Mathematical Economics (IMW)
Time of origin
- 2017
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