Ambiguous Volatility, Possibility and Utility in Continuous Time

Larry Epstein and Shaolin Ji

Papers from arXiv.org

Abstract: This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both the drift and volatility of the driving process. At a technical level, the analysis requires a significant departure from existing continuous time modeling because it cannot be done within a probability space framework. This is because ambiguity about volatility leads invariably to a set of nonequivalent priors, that is, to priors that disagree about which scenarios are possible.

Date: 2011-03, Revised 2013-01
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (6)

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Journal Article: Ambiguous volatility, possibility and utility in continuous time (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1103.1652

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