Indifference pricing with uncertainty averse preferences

Giammarino, Flavia and Barrieu, Pauline (2011): Indifference pricing with uncertainty averse preferences.

Abstract

We consider the indifference valuation of an uncertain monetary payoff from the perspective of an uncertainty averse decision maker. We study how the indifference valuation depends on the decision maker’s attitudes toward uncertainty. We obtain a characterization of comparative uncertainty aversion and various characterizations of increasing, decreasing, and constant uncertainty aversion.

• Item Type: MPRA Paper
• Language: English
• Keywords: Indifference Pricing; Uncertainty Aversion; Risk Measures; Quasiconvexity; Cash-Subadditivity
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

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