Dynamically consistent α-Maxmin expected utility

Beißner P, Lin Q, Riedel F (2016) Center for Mathematical Economics Working Papers; 535, Aktual. Version, February 2016.
Bielefeld: Center for Mathematical Economics.

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Abstract
The α- maxmin model is a prominent example of preferences under Knightian uncertainty as it allows to distinguish ambiguity and ambiguity attitude. These preferences are dynamically inconsistent for nontrivial versions of α. In this paper, we derive a recursive, dynamically consistent version of the α- maxmin model. In the continuous-time limit, the resulting dynamic utility function can be represented as a convex mixture between worst and best case, but now at the local, infinitesimal level. We study the properties of the utility function and provide an Arrow-Pratt approximation of the static and dynamic certainty equivalent. We derive a consumption-based capital asset pricing formula and study the implications for derivative valuation under indifference pricing.
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Beißner P, Lin Q, Riedel F. Dynamically consistent α-Maxmin expected utility. Center for Mathematical Economics Working Papers. Vol 535 Aktual. Version, February 2016. Bielefeld: Center for Mathematical Economics; 2016.
Beißner, P., Lin, Q., & Riedel, F. (2016). Dynamically consistent α-Maxmin expected utility (Center for Mathematical Economics Working Papers, 535) Aktual. Version, February 2016. Bielefeld: Center for Mathematical Economics.
Beißner, P., Lin, Q., and Riedel, F. (2016). Dynamically consistent α-Maxmin expected utility. Center for Mathematical Economics Working Papers, 535, Aktual. Version, February 2016. Bielefeld: Center for Mathematical Economics.
Beißner, P., Lin, Q., & Riedel, F., 2016. Dynamically consistent α-Maxmin expected utility, Center for Mathematical Economics Working Papers, no.535, Aktual. Version, February 2016., Bielefeld: Center for Mathematical Economics.
P. Beißner, Q. Lin, and F. Riedel, Dynamically consistent α-Maxmin expected utility, Center for Mathematical Economics Working Papers, vol. 535, Aktual. Version, February 2016., Bielefeld: Center for Mathematical Economics, 2016.
Beißner, P., Lin, Q., Riedel, F.: Dynamically consistent α-Maxmin expected utility. Center for Mathematical Economics Working Papers, 535, Aktual. Version, February 2016. Center for Mathematical Economics, Bielefeld (2016).
Beißner, Patrick, Lin, Qian, and Riedel, Frank. Dynamically consistent α-Maxmin expected utility. Aktual. Version, February 2016. Bielefeld: Center for Mathematical Economics, 2016. Center for Mathematical Economics Working Papers. 535.
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