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Multiple priors and no-transaction region

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Kozhan, Roman (2006) Multiple priors and no-transaction region. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.06-).

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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...

Abstract

We study single period asset allocation problems of the investor who maximizes the expected utility with respect to non-additive beliefs. The non-additive beliefs of the investor model the presence of an uncertainty and they are assumed to be consistent with the Maxmin expected utility theory of Gilboa and Schmeidler (1989). The proportional transaction costs are incorporated into the model. We provide the explicit form solutions for the bounds of no-transaction regions which completely determine the optimal policy of the investor.

Item Type:

Working or Discussion Paper (Working Paper)

Subjects:

H Social Sciences > HB Economic Theory

Divisions:

Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre
Faculty of Social Sciences > Warwick Business School

Library of Congress Subject Headings (LCSH):

Utility theory, Transaction costs, Uncertainty (Information theory), Portfolio management

Series Name:

Working papers (Warwick Business School. Financial Econometrics Research Centre)

Publisher:

Warwick Business School, Financial Econometrics Research Centre

Place of Publication:

Coventry

Official Date:

2006

Dates:

Date	Event
2006	Published

Number:

No.06-

Number of Pages:

Status:

Not Peer Reviewed

Access rights to Published version:

Open Access

References:

Boyle, P. and Lin, X.: 1997, Optimal portfolio selection with transaction costs, North American Actuarial Journal 2, 27–39.
Carlier, G. and Dana, R.: 2003, Core of convex distortions of a probability, Journal of Economic Theory 113(2), 199–222.
Choquet, G.: 1953, Theory of capacities, Annales de l’Institut Fourier 5, 131–295.
Dow, J. and Werlang, S.: 1992, Uncertainty aversion, risk aversion, and the optimal choice of portfolio, Econometrica 60(1), 197–204.
Ellsberg, D.: 1961, Risk, ambiguity and savage axioms, Quarterly Journal of Economics 75, 643–669.
Gennotte, G. and Jung, A.: 1994, Investment strategies under transaction costs: The finite horizon case, Management Science 40, 385–404.
Gilboa, I. and Schmeidler, D.: 1989, Maxmin expected utility with non-unique prior, Journal of Mathematical Ecoomics 18, 141–153.
Knight, F.: 1921, Risk, Uncertainty and Profit, Boston: Houghton Mifflin.
Kozhan, R. and Schmid, W.: 2005, Optimal investment decisions with exponential utility function, Working Paper, European University Viadrina 2/2005.
Savage, L.: 1954, The Foundations of Statistics, New York: Dower Publications.
Schmeidler, D.: 1989, Subjective probability and expected utility without additivity, Econometrica 57, 571–587.
von Neumann, J. and Morgenstern, O.: 1944, Theory of Games and Economic Behavior, Princeton University press, Princeton.

URI:

http://wrap.warwick.ac.uk/id/eprint/1745

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