Special Issue on Computational Intelligence for Policy Making and Risk Governance: A Tribute to Professor Dr Da RuanNo Access

AMBIGUOUS RISK AVERSION UNDER CAPACITY

HONGXIA WANG

Department of Applied Mathematics, Beijing University of Technology, 100 Ping Le Yuan, Chao Yang District, Beijing 100124, P. R. China

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and

SHOUMEI LI

Department of Applied Mathematics, Beijing University of Technology, 100 Ping Le Yuan, Chao Yang District, Beijing 100124, P. R. China

Corresponding author.

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https://doi.org/10.1142/S0218488512400077Cited by:3 (Source: Crossref)

Abstract

The aim of this paper is to propose a new measure approach of ambiguous risk aversion under some capacity μ (a non-additive measure), in particular, under the distorted probability. Firstly, by using the Choquet integral with respect to the capacity μ, we introduce the concept of ambiguous risk premium of a risk asset X for risk aversive individuals whose utility function is u, and we investigate some properties of the ambiguous risk premium under some assumptions. Then to illustrate our theoretical results, we give an example and empirical results.

Keywords:

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