CONDITIONAL CERTAINTY EQUIVALENT

Marco Frittelli and Marco Maggis
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Marco Frittelli: Department of Mathematics, University of Milan, via C. Saldini 50 Milan, 20134, Italy
Marco Maggis: Department of Mathematics, University of Milan, via C. Saldini 50 Milan, 20134, Italy

Chapter 13 in Finance at Fields, 2012, pp 307-325 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn a dynamic framework, we study the conditional version of the classical notion of certainty equivalent when the preferences are described by a stochastic dynamic utility u(x, t, ω). We introduce an appropriate mathematical setting, namely Orlicz spaces determined by the underlying preferences and thus provide a systematic method to go beyond the case of bounded random variables. Finally we prove a conditional version of the dual representation which is a crucial prerequisite for discussing the dynamics of certainty equivalents.

Keywords: Mathematical Finance; Financial Mathematics; Risk Management; Asset Pricing; Computational Finance; Derivatives; Option Pricing; Portfolio Optimization (search for similar items in EconPapers)
Date: 2012
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