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Multiple Priors and No-Transaction Region

  • Roman Kozhan

We study single period asset allocation problems of the investor who maximizes the expected utility with respect to non-additive beliefs. The non-additive beliefs of the investor model the presence of an uncertainty and they are assumed to be consistent with the Maxmin expected utility theory of Gilboa and Schmeidler (1989). The proportional transaction costs are incorporated into the model. We provide the explicit form solutions for the bounds of no-transaction regions which completely determine the optimal policy of the investor.

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File URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfri/rsrchcentres/ferc/wrkingpaprseries/fwp06-24.pdf
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Paper provided by Warwick Business School, Finance Group in its series Working Papers with number wp06-24.

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Date of creation: 2006
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Handle: RePEc:wbs:wpaper:wp06-24
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  12. Fritsch, Michael & Stephan, Andreas, 2004. "The distribution and heterogeneity of technical efficiency within industries: An empirical assessment," Freiberg Working Papers 2004,12, TU Bergakademie Freiberg, Faculty of Economics and Business Administration.
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  18. Henke, Harald & Voronkova, Svitlana, 2005. "Price limits on a call auction market: Evidence from the Warsaw Stock Exchange," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 439-453.
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  22. Carlier, G. & Dana, R. A., 2003. "Core of convex distortions of a probability," Journal of Economic Theory, Elsevier, vol. 113(2), pages 199-222, December.
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