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Rationalizing Constrained Contingent Claims

Author

Listed:
  • Borglin, Anders

    (Department of Economics, Lund University)

  • Flåm, Sjur

    (Economics Department, Bergen University)

Abstract

Choice of contingent claims could reflect risk aversion or pessimism. Accordingly, the underlying, but hidden preferences might fit expected utility of customary von Neumann-Morgenstern form - or more generally, comply with a Choquet integral. This paper considers constrained choice and rationalizes both sorts of attitudes. Two avenues are pursued: one invokes complete orders; the other contends with partial ordering. Emphasis is on incomplete financial markets, featuring nonlinear pricing.

Suggested Citation

  • Borglin, Anders & Flåm, Sjur, 2007. "Rationalizing Constrained Contingent Claims," Working Papers 2007:12, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2007_012
    as

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    File URL: http://project.nek.lu.se/publications/workpap/Papers/WP07_12.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Nonlinear price; Risk or uncertainty aversion; Choquet integral; Stochastic order; Incomplete preferences;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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