Ambiguity made easier

Matteo Del Vigna ()
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Matteo Del Vigna: Dipartimento di Statistica e Matematica Applicata all'Economia, Universita' di Pisa & CEREMADE, Universite' Paris-Dauphine

No 2011-07, Working Papers - Mathematical Economics from Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa

Abstract: In this paper we review some well-known simple models for portfolio selection under Knightian uncertainty, also known as ambiguity, and we compute a number of explicit optimal portfolio rules using elementary mathematical tools. In the case of a single period financial market, new results arise for an agent who is risk neutral and smoothly ambiguity averse, for a loss averse and smoothly ambiguity averse agent, for a Mean-Variance and alpha-Maxmin Expected Utility agent. In a continuous time setting, we are able to recover some existing results on optimal investment strategies employing trivial stochastic analysis and avoiding the complicated BSDE machinery.

Keywords: Knightian uncertainty; Maxmin Expected Utility; smooth ambiguity aversion; loss aversion (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2011-04
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:flo:wpaper:2011-07

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