Smooth Ambiguity Aversion and the Continuous-Time Limit
71 Pages Posted: 11 Oct 2010 Last revised: 16 Mar 2012
Date Written: November 13, 2011
Abstract
Skiadas (2009) shows that Klibanoff, Marinacci, Mukerji (2005, 2009) and related smooth representations of ambiguity averse preferences are not able to describe an ambiguity averse behavior when the underlying uncertainty is of the Brownian or Poissonian type. We propose a preferences representation that admits a smooth ambiguity averse behavior in such cases. In a jump-diffusion uncertainty environment, this representation is shown to embed many explicit utility backward stochastic differential equations studied in the literature and many new explicit forms.
Keywords: Ambiguity, continuous-time, recursive utility
JEL Classification: D81
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Smooth Model of Decision Making Under Ambiguity
By Peter Klibanoff, Massimo Marinacci, ...
-
Model Misspecification and Under-Diversification
By Tan Wang and Raman Uppal
-
Model Misspecification and Under-Diversification
By Tan Wang and Raman Uppal
-
By Larry G. Epstein and Martin Schneider
-
Model Uncertainty, Limited Market Participation and Asset Prices
By H. Henry Cao, Harold H. Zhang, ...
-
Ambiguity, Learning, and Asset Returns
By Nengjiu Ju and Jianjun Miao
-
Learning and Asset Prices Under Ambiguous Information
By Paolo Vanini, Markus Leippold, ...
-
By David Easley and Maureen O'hara
-
By Larry G. Epstein and Martin Schneider