IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v49y2013i1p22-27.html
   My bibliography  Save this article

Indifference pricing with uncertainty averse preferences

Author

Listed:
  • Giammarino, Flavia
  • Barrieu, Pauline

Abstract

We consider the indifference valuation of an uncertain monetary payoff from the perspective of an uncertainty averse decision maker. We study how the indifference valuation depends on the decision maker’s attitudes toward uncertainty. We obtain a characterization of comparative uncertainty aversion and various characterizations of increasing, decreasing, and constant uncertainty aversion.

Suggested Citation

  • Giammarino, Flavia & Barrieu, Pauline, 2013. "Indifference pricing with uncertainty averse preferences," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 22-27.
    • Handle: RePEc:eee:mateco:v:49:y:2013:i:1:p:22-27
    DOI: 10.1016/j.jmateco.2012.09.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304406812000766
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmateco.2012.09.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Cerreia-Vioglio, S. & Maccheroni, F. & Marinacci, M. & Montrucchio, L., 2011. "Uncertainty averse preferences," Journal of Economic Theory, Elsevier, vol. 146(4), pages 1275-1330, July.
    2. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Econometrica, Econometric Society, vol. 74(6), pages 1447-1498, November.
    3. Giammarino, Flavia & Barrieu, Pauline, 2013. "Indifference pricing with uncertainty averse preferences," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 22-27.
    4. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    5. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
    6. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1473-1486, July.
    7. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2008. "Risk Measures: Rationality and Diversification," Carlo Alberto Notebooks 100, Collegio Carlo Alberto.
    8. Yaari, Menahem E., 1969. "Some remarks on measures of risk aversion and on their uses," Journal of Economic Theory, Elsevier, vol. 1(3), pages 315-329, October.
    9. F J Anscombe & R J Aumann, 2000. "A Definition of Subjective Probability," Levine's Working Paper Archive 7591, David K. Levine.
    10. Deprez, Olivier & Gerber, Hans U., 1985. "On convex principles of premium calculation," Insurance: Mathematics and Economics, Elsevier, vol. 4(3), pages 179-189, July.
    11. Marco Frittelli & Marco Maggis, 2011. "Conditional Certainty Equivalent," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 14(01), pages 41-59.
    12. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Romain Blanchard & Laurence Carassus, 2021. "Convergence of utility indifference prices to the superreplication price in a multiple‐priors framework," Mathematical Finance, Wiley Blackwell, vol. 31(1), pages 366-398, January.
    2. Giammarino, Flavia & Barrieu, Pauline, 2013. "Indifference pricing with uncertainty averse preferences," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 22-27.
    3. Qian Lin, 2015. "Dynamic indifference pricing via the G-expectation," Papers 1503.08628, arXiv.org, revised Sep 2020.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Roger J. A. Laeven & Mitja Stadje, 2013. "Entropy Coherent and Entropy Convex Measures of Risk," Mathematics of Operations Research, INFORMS, vol. 38(2), pages 265-293, May.
    2. Samuel Drapeau & Michael Kupper, 2013. "Risk Preferences and Their Robust Representation," Mathematics of Operations Research, INFORMS, vol. 38(1), pages 28-62, February.
    3. Knispel, Thomas & Laeven, Roger J.A. & Svindland, Gregor, 2016. "Robust optimal risk sharing and risk premia in expanding pools," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 182-195.
    4. Sigrid Källblad, 2017. "Risk- and ambiguity-averse portfolio optimization with quasiconcave utility functionals," Finance and Stochastics, Springer, vol. 21(2), pages 397-425, April.
    5. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2012. "Niveloids and Their Extensions:Risk Measures on Small Domains," Working Papers 458, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Volker Krätschmer & Marcel Ladkau & Roger J. A. Laeven & John G. M. Schoenmakers & Mitja Stadje, 2018. "Optimal Stopping Under Uncertainty in Drift and Jump Intensity," Mathematics of Operations Research, INFORMS, vol. 43(4), pages 1177-1209, November.
    7. Ji, Ronglin & Shi, Xuejun & Wang, Shijie & Zhou, Jinming, 2019. "Dynamic risk measures for processes via backward stochastic differential equations," Insurance: Mathematics and Economics, Elsevier, vol. 86(C), pages 43-50.
    8. Steven Kou & Xianhua Peng, 2016. "On the Measurement of Economic Tail Risk," Operations Research, INFORMS, vol. 64(5), pages 1056-1072, October.
    9. Enrico G. De Giorgi & David B. Brown & Melvyn Sim, 2010. "Dual representation of choice and aspirational preferences," University of St. Gallen Department of Economics working paper series 2010 2010-07, Department of Economics, University of St. Gallen.
    10. Yi Shen & Zachary Van Oosten & Ruodu Wang, 2024. "Partial Law Invariance and Risk Measures," Papers 2401.17265, arXiv.org, revised Jun 2024.
    11. Bellini, Fabio & Laeven, Roger J.A. & Rosazza Gianin, Emanuela, 2021. "Dynamic robust Orlicz premia and Haezendonck–Goovaerts risk measures," European Journal of Operational Research, Elsevier, vol. 291(2), pages 438-446.
    12. Hans Follmer & Alexander Schied, 2013. "Probabilistic aspects of finance," Papers 1309.7759, arXiv.org.
    13. Ruodu Wang & Ričardas Zitikis, 2021. "An Axiomatic Foundation for the Expected Shortfall," Management Science, INFORMS, vol. 67(3), pages 1413-1429, March.
    14. Steven Kou & Xianhua Peng & Chris C. Heyde, 2013. "External Risk Measures and Basel Accords," Mathematics of Operations Research, INFORMS, vol. 38(3), pages 393-417, August.
    15. He, Kun & Hu, Mingshang & Chen, Zengjing, 2009. "The relationship between risk measures and choquet expectations in the framework of g-expectations," Statistics & Probability Letters, Elsevier, vol. 79(4), pages 508-512, February.
    16. Steven Kou & Xianhua Peng, 2014. "On the Measurement of Economic Tail Risk," Papers 1401.4787, arXiv.org, revised Aug 2015.
    17. Roger J. A. Laeven & Mitja Stadje, 2014. "Robust Portfolio Choice and Indifference Valuation," Mathematics of Operations Research, INFORMS, vol. 39(4), pages 1109-1141, November.
    18. Azrieli, Yaron & Teper, Roee, 2011. "Uncertainty aversion and equilibrium existence in games with incomplete information," Games and Economic Behavior, Elsevier, vol. 73(2), pages 310-317.
    19. Elisa Mastrogiacomo & Emanuela Rosazza Gianin, 2015. "Portfolio Optimization with Quasiconvex Risk Measures," Mathematics of Operations Research, INFORMS, vol. 40(4), pages 1042-1059, October.
    20. Denuit Michel & Dhaene Jan & Goovaerts Marc & Kaas Rob & Laeven Roger, 2006. "Risk measurement with equivalent utility principles," Statistics & Risk Modeling, De Gruyter, vol. 24(1), pages 1-25, July.

    More about this item

    Keywords

    Indifference pricing; Uncertainty aversion; Risk measures; Quasiconvexity; Cash-subadditivity;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:49:y:2013:i:1:p:22-27. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.