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Optimal Demand for Contingent Claims when Agents have law Invariant Utilities

Carlier, Guillaume; Dana, Rose-Anne (2011), Optimal Demand for Contingent Claims when Agents have law Invariant Utilities, Mathematical Finance, 21, 2, p. 169-201. http://dx.doi.org/10.1111/j.1467-9965.2010.00431.x

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Type
Article accepté pour publication ou publié
Date
2011
Journal name
Mathematical Finance
Volume
21
Number
2
Publisher
Wiley
Pages
169-201
Publication identifier
Metadata
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Author(s)
Carlier, Guillaume
Dana, Rose-Anne
Abstract (EN)
We consider a class of law invariant utilities which contains the RankDependent Expected Utility (RDU) and the cumulative prospect theory(CPT). We show that the computation of demand for a contingent claimwhen utilities are within that class, although not as simple as in theExpected Utility (EU) case, is still tractable. Specific attention is givento the RDU and to the CPT cases. Numerous examples are fully solved.
Subjects / Keywords
Constrained Optimization; Demand; Law Invariant Utilities; Quantiles
JEL
C0 - General
D8 - Information, Knowledge, and Uncertainty