Rationalizing Constrained Contingent Claims

Anders Borglin () and Sjur Flåm
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Anders Borglin: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden, http://www.nek.lu.se/en/contact

No 2007:12, Working Papers from Lund University, Department of Economics

Abstract: Choice of contingent claims could reflect risk aversion or pessimism. Accordingly, the underlying, but hidden preferences might fit expected utility of customary von Neumann-Morgenstern form - or more generally, comply with a Choquet integral. This paper considers constrained choice and rationalizes both sorts of attitudes. Two avenues are pursued: one invokes complete orders; the other contends with partial ordering. Emphasis is on incomplete financial markets, featuring nonlinear pricing.

Keywords: Nonlinear price; Risk or uncertainty aversion; Choquet integral; Stochastic order; Incomplete preferences (search for similar items in EconPapers)
JEL-codes: C81 D01 G13 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-06-25
New Economics Papers: this item is included in nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:lunewp:2007_012

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