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The Arbitrage Pricing Theorem with non Expected Utility Preferences

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Author Info

  • Kelsey, D.
  • Milne, F.

Abstract

The arbitrage pricing theorem of finance shows that in certain circumstances the price of a financial asset may be written as a linear combination of the prices of certain market factors. This result is usually proved with von Neumann-Morgenstern preferences. In this paper we show that the result is robust in the sense that it will remain true if certain kinds of non expected utility preferences are used. We consider Machina preferences, the rank dependent model and non-additive subjective probabilities.

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Bibliographic Info

Paper provided by Australian National University - Department of Economics in its series Papers with number 217.

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Length: 24 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:aunaec:217

Contact details of provider:
Postal: THE AUSTRALIAN NATIONAL UNIVERSITY, DEPARTMENT OF ECONOMICS, RESEARCH SCHOOL of PACIFIC STUDIES, RESEARCH SCHOOL OF SOCIAL SCIENCES, G.P.O. 4, CANBERRA ACT 2601 AUSTRALIA..O. BOX 4 CANBERRA 2601 AUSTRALIA.
Web page: http://economics.anu.edu.au/economics.htm
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Keywords: prices ; financial market ; economic models;

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Cited by:
  1. Aldo Montesano, 2008. "Effects of Uncertainty Aversion on the Call Option Market," Theory and Decision, Springer, vol. 65(2), pages 97-123, September.
  2. Kelsey, David & Yalcin, Erkan, 2007. "The arbitrage pricing theorem with incomplete preferences," Mathematical Social Sciences, Elsevier, vol. 54(1), pages 90-105, July.
  3. Mukerji, Sujoy & Tallon, Jean-Marc, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 883-904, October.
  4. Eichberger, Jürgen & Kelsey, David, 2007. "Ambiguity," Sonderforschungsbereich 504 Publications 07-50, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
    • Jürgen Eichberger & David Kelsey, 2007. "Ambiguity," Working Papers 0448, University of Heidelberg, Department of Economics, revised Jul 2007.
  5. repec:hal:cesptp:halshs-00174539 is not listed on IDEAS
  6. Naqvi, Nadeem, 2012. "Why is the Workplace Racially Segregated by Occupation?," MPRA Paper 43352, University Library of Munich, Germany.
  7. Erkan Yalcin, 2002. "Existence of Equilibrium in Incomplete Markets with Non-Ordered Preferences," GE, Growth, Math methods 0204002, EconWPA.
  8. Naqvi, Nadeem, 2012. "Impossibility of interpersonal social identity diversification under binary preferences," MPRA Paper 41365, University Library of Munich, Germany.

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