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Dynamic indifference pricing via the G-expectation

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  • Qian Lin

Abstract

We study the dynamic indifference pricing with ambiguity preferences. For this, we introduce the dynamic expected utility with ambiguity via the nonlinear expectation--G-expectation, introduced by Peng (2007). We also study the risk aversion and certainty equivalent for the agents with ambiguity. We obtain the dynamic consistency of indifference pricing with ambiguity preferences. Finally, we obtain comparative statics.

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  • Qian Lin, 2015. "Dynamic indifference pricing via the G-expectation," Papers 1503.08628, arXiv.org, revised Sep 2020.
    • Handle: RePEc:arx:papers:1503.08628
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    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. Larry G. Epstein & Shaolin Ji, 2013. "Ambiguous Volatility and Asset Pricing in Continuous Time," The Review of Financial Studies, Society for Financial Studies, vol. 26(7), pages 1740-1786.
    3. Giammarino, Flavia & Barrieu, Pauline, 2013. "Indifference pricing with uncertainty averse preferences," Journal of Mathematical Economics, Elsevier, vol. 49(1), pages 22-27.
    4. Epstein, Larry G. & Ji, Shaolin, 2014. "Ambiguous volatility, possibility and utility in continuous time," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 269-282.
    5. Patrick Beissner & Frank Riedel, 2014. "Non-Implementability of Arrow-Debreu Equilibria by Continuous Trading under Knightian Uncertainty," Papers 1409.6940, arXiv.org.
    6. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
    7. 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.
    8. Vorbrink, Jörg, 2014. "Financial markets with volatility uncertainty," Journal of Mathematical Economics, Elsevier, vol. 53(C), pages 64-78.
    9. Peng, Shige, 2008. "Multi-dimensional G-Brownian motion and related stochastic calculus under G-expectation," Stochastic Processes and their Applications, Elsevier, vol. 118(12), pages 2223-2253, December.
    10. Beißner, Patrick, 2016. "Radner Equilibria under Ambiguous Volatility," Center for Mathematical Economics Working Papers 493, Center for Mathematical Economics, Bielefeld University.
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    Cited by:

    1. Eldred, Lindsey M. & Gifford, Elizabeth J., 2016. "Empirical evidence on legal levers aimed at addressing child maltreatment," Children and Youth Services Review, Elsevier, vol. 60(C), pages 11-19.

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