Certainty equivalent and utility indifference pricing for incomplete preferences via convex vector optimization
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Publication:829338
DOI10.1007/S11579-020-00282-XzbMATH Open1461.91128arXiv1904.09456OpenAlexW3125598096MaRDI QIDQ829338FDOQ829338
Publication date: 5 May 2021
Published in: Mathematics and Financial Economics (Search for Journal in Brave)
Abstract: For incomplete preference relations that are represented by multiple priors and/or multiple -- possibly multivariate -- utility functions, we define a certainty equivalent as well as the utility buy and sell prices and indifference price bounds as set-valued functions of the claim. Furthermore, we motivate and introduce the notion of a weak and a strong certainty equivalent. We will show that our definitions contain as special cases some definitions found in the literature so far on complete or special incomplete preferences. We prove monotonicity and convexity properties of utility buy and sell prices that hold in total analogy to the properties of the scalar indifference prices for complete preferences. We show how the (weak and strong) set-valued certainty equivalent as well as the indifference price bounds can be computed or approximated by solving convex vector optimization problems. Numerical examples and their economic interpretations are given for the univariate as well as for the multivariate case.
Full work available at URL: https://arxiv.org/abs/1904.09456
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Cited In (10)
- On dynamic programming equations for utility indifference pricing under delta constraints
- Geometric Duality Results and Approximation Algorithms for Convex Vector Optimization Problems
- Outer approximation algorithms for convex vector optimization problems
- Well-posedness and existence for the weak multicriteria Nash equilibrium of multicriteria games
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- A norm minimization-based convex vector optimization algorithm
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- Algorithms to Solve Unbounded Convex Vector Optimization Problems
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