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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.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_866.pdf
File Function: First version 1992
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 866.

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Length: 38 pages
Date of creation: Aug 1992
Date of revision:
Handle: RePEc:qed:wpaper:866

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Cited by:
  1. repec:hal:cesptp:halshs-00174539 is not listed on IDEAS
  2. 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.
  3. Erkan Yalcin, 2002. "Existence of Equilibrium in Incomplete Markets with Non-Ordered Preferences," GE, Growth, Math methods 0204002, EconWPA.
  4. Mukerji, S. & Tallon, J.-M., 1999. "Ambiguity Aversion and Incompleteness of Financial Markets," Papiers d'Economie Mathématique et Applications 1999-28, Université Panthéon-Sorbonne (Paris 1).
  5. Naqvi, Nadeem, 2012. "Impossibility of interpersonal social identity diversification under binary preferences," MPRA Paper 41365, University Library of Munich, Germany.
  6. David Kelsey & Erkan Yalcin, 2004. "The Arbitrage Pricing Theorem with Incomplete Preferences," GE, Growth, Math methods 0401002, EconWPA.
  7. Naqvi, Nadeem, 2012. "Why is the Workplace Racially Segregated by Occupation?," MPRA Paper 43352, University Library of Munich, Germany.
  8. Aldo Montesano, 2008. "Effects of Uncertainty Aversion on the Call Option Market," Theory and Decision, Springer, vol. 65(2), pages 97-123, September.

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