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Rationalizing Constrained Contingent Claims

Author

Listed:
  • Borglin, Anders

    () (Department of Economics, Lund University)

  • Flåm, Sjur

    () (Economics Department, Bergen University)

Abstract

Choice of contingent claims could reflect risk aversion or pessimism. Accordingly, the underlying, but hidden preferences might fit expected utility of customary von Neumann-Morgenstern form - or more generally, comply with a Choquet integral. This paper considers constrained choice and rationalizes both sorts of attitudes. Two avenues are pursued: one invokes complete orders; the other contends with partial ordering. Emphasis is on incomplete financial markets, featuring nonlinear pricing.

Suggested Citation

  • Borglin, Anders & Flåm, Sjur, 2007. "Rationalizing Constrained Contingent Claims," Working Papers 2007:12, Lund University, Department of Economics.
  • Handle: RePEc:hhs:lunewp:2007_012
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    References listed on IDEAS

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    More about this item

    Keywords

    Nonlinear price; Risk or uncertainty aversion; Choquet integral; Stochastic order; Incomplete preferences;

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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