No good deals—no bad models

Nina Boyarchenko, Mario Cerrato, John Crosby and Stewart Hodges

No 589, Staff Reports from Federal Reserve Bank of New York

Abstract: Faced with the problem of pricing complex contingent claims, investors seek to make their valuations robust to model uncertainty. We construct a notion of a model-uncertainty-induced utility function and show that model uncertainty increases investors? effective risk aversion. Using this utility function, we extend the ?no good deals? methodology of Cochrane and Sa-Requejo (2000) to compute lower and upper good-deal bounds in the presence of model uncertainty. We illustrate the methodology using some numerical examples.

Keywords: Investments; Econometric models; Uncertainty; Asset pricing (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr589.html (text/html)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr589.pdf (application/pdf)

Related works:
Working Paper: No Good Deals—No Bad Models (2014)
Working Paper: No Good Deals - No Bad Models (2013)
Working Paper: No Good Deals - No Bad Models (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:589

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().