Scandinavian Working Papers in Economics
Working Papers,
Lund University, Department of Economics
No 2007:12: Rationalizing Constrained Contingent Claims
Anders Borglin () and Sjur Flåm ()
Additional contact information
Anders Borglin: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Sjur Flåm: Economics Department, Bergen University, Postal: Economics Department, Bergen University, Bergen, Norway
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.
Keywords: Nonlinear price; Risk or uncertainty aversion; Choquet integral; Stochastic order; Incomplete preferences
21 pages, June 25, 2007
Full text files
WP07_12.pdf
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