Certainty Equivalent and Utility Indifference Pricing for Incomplete Preferences via Convex Vector Optimization

Birgit Rudloff and Firdevs Ulus

Papers from arXiv.org

Abstract: For incomplete preference relations that are represented by multiple priors and/or multiple -- possibly multivariate -- utility functions, we define a certainty equivalent as well as the utility buy and sell prices and indifference price bounds as set-valued functions of the claim. Furthermore, we motivate and introduce the notion of a weak and a strong certainty equivalent. We will show that our definitions contain as special cases some definitions found in the literature so far on complete or special incomplete preferences. We prove monotonicity and convexity properties of utility buy and sell prices that hold in total analogy to the properties of the scalar indifference prices for complete preferences. We show how the (weak and strong) set-valued certainty equivalent as well as the indifference price bounds can be computed or approximated by solving convex vector optimization problems. Numerical examples and their economic interpretations are given for the univariate as well as for the multivariate case.

Date: 2019-04, Revised 2020-10
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Mathematics and Financial Economics 15(2), 397-430 (2021)

Downloads: (external link)
http://arxiv.org/pdf/1904.09456 Latest version (application/pdf)

Related works:
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:arx:papers:1904.09456

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().