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Correction to: Asset pricing under smooth ambiguity in continuous time

Author

Listed:
  • Lars Peter Hansen

    (University of Chicago)

  • Jianjun Miao

    (Boston University)

Abstract

We study asset pricing implications of a revealing and tractable formulation of smooth ambiguity investor preferences in a continuous-time environment. Investors do not observe a hidden Markov state and instead make inferences about this state using past data. We show that ambiguity about this hidden state distribution alters investor decisions and equilibrium asset prices. Our continuous-time formulation allows us to apply recursive filtering and Hamilton–Jacobi–Bellman methods to solve the modified decision problem. Using such methods, we show how characterizations of portfolio allocations and local uncertainty-return tradeoffs change when investors are ambiguity-averse.
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Suggested Citation

  • Lars Peter Hansen & Jianjun Miao, 2023. "Correction to: Asset pricing under smooth ambiguity in continuous time," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(1), pages 291-292, January.
    • Handle: RePEc:spr:joecth:v:75:y:2023:i:1:d:10.1007_s00199-022-01460-2
    DOI: 10.1007/s00199-022-01460-2
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    2. Xepapadeas, Anastasios, 2024. "Uncertainty and climate change: The IPCC approach vs decision theory," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 109(C).
    3. Paramahansa Pramanik, 2026. "The Quantum Structure of Markets: Linking Hamiltonian-Jacobi-Bellman Dynamics to Schrodinger Equation through Feynman Action," Papers 2603.25086, arXiv.org.
    4. Redouane Elkamhi & Chanik Jo & Yoshio Nozawa, 2024. "A One-Factor Model of Corporate Bond Premia," Management Science, INFORMS, vol. 70(3), pages 1875-1900, March.
    5. Jin, Yurong & Yan, Jingzhou & Yan, Qianhui, 2024. "Unraveling ESG Ambiguity, Price Reaction, and Trading Volume," Finance Research Letters, Elsevier, vol. 61(C).
    6. Archankul, Arnon & Ferrari, Giorgio & Hellmann, Tobias & Thijssen, Jacco J.J., 2025. "Singular control in a cash management model with ambiguity," European Journal of Operational Research, Elsevier, vol. 327(2), pages 500-514.
    7. Luo, Deqing & Shan, Xun & Yan, Jingzhou & Yan, Qianhui, 2023. "Sustainable investment under ESG volatility and ambiguity," Economic Modelling, Elsevier, vol. 128(C).
    8. Emanuele Borgonovo & An Chen & Massimo Marinacci & Shihao Zhu, 2026. "Nonconcave Portfolio Choice under Smooth Ambiguity," Papers 2603.08552, arXiv.org.
    9. Toquebeuf, Pascal, 2026. "Dynamic adverse selection with the best and the worst in mind," Mathematical Social Sciences, Elsevier, vol. 139(C).
    10. Xueqi Dong & Shuo Li Liu, 2025. "Convexity under ambiguity," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(2), pages 353-373, October.
    11. Arnon Archankul & Jacco J. J. Thijssen, 2025. "Singular Control in Inventory Management with Smooth Ambiguity," Papers 2505.07761, arXiv.org.
    12. Jianjun Miao, 2022. "Introduction to the special issue in honor of Larry Epstein," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(2), pages 329-333, September.
    13. Pascal Toquebeuf, 2025. "Dynamic adverse selection with the best and the worst in mind," Post-Print hal-05407714, HAL.
    14. Guohui Guan & Zongxia Liang & Jianming Xia, 2025. "Equilibrium Portfolio Selection for Smooth Ambiguity Preferences," Mathematics of Operations Research, INFORMS, vol. 50(2), pages 1042-1071, May.
    15. Archankul, Arnon & Ferrari, Giorgio & Hellmann, Tobias & Thijssen, Jacco J.J., 2025. "Singular Control in a Cash Management Model with Ambiguity," Center for Mathematical Economics Working Papers 731, Center for Mathematical Economics, Bielefeld University.
    16. Arnon Archankul & Giorgio Ferrari & Tobias Hellmann & Jacco J. J. Thijssen, 2023. "Singular Control in a Cash Management Model with Ambiguity," Papers 2309.12014, arXiv.org, revised Aug 2025.

    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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