Quotation Rudloff, Birgit, Ulus, Firdevs. 2021. Certainty Equivalent and Utility Indifference Pricing for Incomplete Preferences via Convex Vector Optimization. Mathematics and Financial Economics. 15 (2), 397-430.


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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 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.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Mathematics and Financial Economics
Citation Index SCI
WU-Journal-Rating new FIN-A, VW-D
Language English
Title Certainty Equivalent and Utility Indifference Pricing for Incomplete Preferences via Convex Vector Optimization
Volume 15
Number 2
Year 2021
Page from 397
Page to 430
Reviewed? Y
URL https://link.springer.com/article/10.1007/s11579-020-00282-x
DOI http://dx.doi.org/10.1007/s11579-020-00282-x
Open Access N

Associations

People
Rudloff, Birgit (Details)
External
Ulus, Firdevs (Bilkent University, Turkey)
Organization
Institute for Statistics and Mathematics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1118 Probability theory (Details)
1137 Financial mathematics (Details)
5361 Financial management (Details)
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