Optimal demand for contingent claims when agents have law invariant utilities

Guillaume Carlier (1) , Rose-Anne Dana (1)

1 CEREMADE - CEntre de REcherches en MAthématiques de la DEcision

We consider a class of law invariant utilities which contains the Rank Dependent Expected Utility (RDU) and the cumulative prospect theory (CPT). We show that the computation of demand for a contingent claim when utilities are within that class, although not as simple as in the Expected Utility (EU) case, is still tractable. Specific attention is given to the RDU and to the CPT cases. Numerous examples are fully solved.

Domaines: Optimisation et contrôle [math.OC]

Guillaume Carlier, Rose-Anne Dana. Optimal demand for contingent claims when agents have law invariant utilities. Mathematical Finance, 2011, 21 (2), pp.169-201. ⟨10.1111/j.1467-9965.2010.00431.x⟩. ⟨hal-00637451⟩