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Titel
Dynamically consistent -maxmin expected utility / Patrick Beißner, Qian Lin and Frank Riedel
VerfasserBeißner, Patrick ; Lin, Qian ; Riedel, Frank
ErschienenBielefeld : Center for Mathematical Economics (IMW), December 2017
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Elektronische Ressource
Umfang1 Online-Ressource (24 Seiten)
SerieCenter for Mathematical Economics Working papers ; 593
URNurn:nbn:de:hbz:6:2-103397 
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Dynamically consistent -maxmin expected utility [0.48 mb]
Zusammenfassung

The -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.

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