TY  - GEN
AB  - The α-maxmin model is a prominent example of preferences under
Knightian uncertainty as it allows to distinguish ambiguity and ambiguity
attitude. These preferences are dynamically inconsistent for nontrivial
versions of α. In this paper, we derive a recursive, dynamically consistent
version of the α-maxmin model. In the continuous-time limit, the resulting dynamic utility function can be represented as a convex mixture between worst and best case, but now at the local, infinitesimal level.
We study the properties of the utility function and provide an Arrow-
Pratt approximation of the static and dynamic certainty equivalent. We
derive a consumption-based capital asset pricing formula and study the
implications for derivative valuation under indifference pricing.
DA  - 2017
KW  - Dynamic consistency
KW  - α-maxmin expected utility
KW  - Knightian uncertainty
KW  - ambiguity attitude
LA  - eng
PY  - 2017
SN  - 0931-6558
SP  - 25-
TI  - Dynamically Consistent α-Maxmin Expected Utility
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29304362
Y2  - 2024-11-22T11:19:37
ER  -