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The arbitrage Pricing Theorem with Non Expected Utility Preferences

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  • David Kelsey
  • Frank Milne

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.

Suggested Citation

  • David Kelsey & Frank Milne, 1992. "The arbitrage Pricing Theorem with Non Expected Utility Preferences," Working Paper 866, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:866
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_866.pdf
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    Cited by:

    1. Erkan Yalcin, 2002. "Existence of Equilibrium in Incomplete Markets with Non-Ordered Preferences," GE, Growth, Math methods 0204002, University Library of Munich, Germany.
    2. Sujoy Mukerji & Jean-Marc Tallon, 2001. "Ambiguity Aversion and Incompleteness of Financial Markets," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 883-904.
    3. Aldo Montesano, 2008. "Effects of Uncertainty Aversion on the Call Option Market," Theory and Decision, Springer, vol. 65(2), pages 97-123, September.
    4. Kelsey, David & Yalcin, Erkan, 2007. "The arbitrage pricing theorem with incomplete preferences," Mathematical Social Sciences, Elsevier, vol. 54(1), pages 90-105, July.
    5. Eichberger, Jürgen & Kelsey, David, 2007. "Ambiguity," Papers 07-50, Sonderforschungsbreich 504.
    6. Naqvi, Nadeem, 2012. "Why is the Workplace Racially Segregated by Occupation?," MPRA Paper 43352, University Library of Munich, Germany.
    7. repec:awi:wpaper:0448 is not listed on IDEAS
    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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