Working Papers, Department of Economics, Lund University
Rationalizing Constrained Contingent Claims
() and Sjur Flåm
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
Keywords: Nonlinear price; Risk or uncertainty aversion; Choquet integral; Stochastic order; Incomplete preferences; (follow links to similar papers)
JEL-Codes: C81; D01; G13; (follow links to similar papers)
21 pages, June 25, 2007
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