Arbeitspapier
Foundations of continuous-time recrusive utility: Differentiability and normalization of certainty equivalents
This paper relates recursive utility in continuous time to its discrete-time origins and provides a rigorous and intuitive alternative to a heuristic approach presented in [Duffie, Epstein 1992], who formally define recursive utility in continuous time via backward stochastic differential equations (stochastic differential utility). Furthermore, we show that the notion of Gâteaux differentiability of certainty equivalents used in their paper has to be replaced by a different concept. Our approach allows us to address the important issue of normalization of aggregators in non-Brownian settings. We show that normalization is always feasible if the certainty equivalent of the aggregator is of expected utility type. Conversely, we prove that in general Lévy frameworks this is essentially also necessary, i.e. aggregators that are not of expected utility type cannot be normalized in general. Besides, for these settings we clarify the relationship of our approach to stochastic differential utility and, finally, establish dynamic programming results.
- Sprache
-
Englisch
- Erschienen in
-
Series: Working Paper Series: Finance & Accounting ; No. 196
- Klassifikation
-
Wirtschaft
Criteria for Decision-Making under Risk and Uncertainty
Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡
Optimization Techniques; Programming Models; Dynamic Analysis
- Thema
-
recursive utility
stochastic differential utility
Lévy framework
certainty equivalents
normalization
dynamic programming
Zeitpräferenz
Stochastischer Prozess
Erwartungsnutzen
Dynamische Optimierung
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Kraft, Holger
Seifried, Frank Thomas
- Ereignis
-
Veröffentlichung
- (wer)
-
Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
- (wo)
-
Frankfurt a. M.
- (wann)
-
2009
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.
Objekttyp
- Arbeitspapier
Beteiligte
- Kraft, Holger
- Seifried, Frank Thomas
- Johann Wolfgang Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
Entstanden
- 2009
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