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Ambiguity in Factor Models with Vector Expected Utility
Working paper

Ambiguity in Factor Models with Vector Expected Utility

Eric André
09/11/2022

Abstract

model uncertainty Variational Preferences Bayesian Analysis portfolio choice Likelihood Ratio
This letter applies Siniscalchi (2009)’s Vector Expected Utility to introduce ambiguity aversion into factor models for assets’ returns. The resulting criterion is tractable and its adjustment for ambiguity vanishes as initial wealth increases. Finally, it can be related to shrinkage estimators which are used to estimate covariance matrices.
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ANDRE_Ambiguity in Factor Models with Vector Expected Utility
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