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Conditional Certainty Equivalent

In: Finance at Fields

Author

Listed:
  • MARCO FRITTELLI

    (Department of Mathematics, University of Milan, via C. Saldini 50 Milan, 20134, Italy)

  • MARCO MAGGIS

    (Department of Mathematics, University of Milan, via C. Saldini 50 Milan, 20134, Italy)

Abstract

In a dynamic framework, we study the conditional version of the classical notion of certainty equivalent when the preferences are described by a stochastic dynamic utility u(x, t, ω). We introduce an appropriate mathematical setting, namely Orlicz spaces determined by the underlying preferences and thus provide a systematic method to go beyond the case of bounded random variables. Finally we prove a conditional version of the dual representation which is a crucial prerequisite for discussing the dynamics of certainty equivalents.

Suggested Citation

  • Marco Frittelli & Marco Maggis, 2012. "Conditional Certainty Equivalent," World Scientific Book Chapters, in: Matheus R Grasselli & Lane P Hughston (ed.), Finance at Fields, chapter 13, pages 307-325, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814407892_0013
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