Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93654
Authors: 
Boyarchenko, Nina
Cerrato, Mario
Crosby, John
Hodges, Stewart
Year of Publication: 
2012
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 589
Abstract: 
Faced with the problem of pricing complex contingent claims, investors seek to make their valuations robust to model uncertainty. We construct a notion of a modeluncertainty-induced utility function and show that model uncertainty increases investors' effective risk aversion. Using this utility function, we extend the no good deals methodology of Cochrane and Saá-Requejo (2000) to compute lower and upper gooddeal bounds in the presence of model uncertainty. We illustrate the methodology using some numerical examples.
Subjects: 
asset pricing theory
good-deal bounds
Knightian uncertainty
model uncertainty
contingent claim pricing
model-uncertainty-induced utility function
JEL: 
G12
G13
Document Type: 
Working Paper

Files in This Item:
File
Size
482.47 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.