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Monetary valuation of cash flows under Knightian uncertainty

Please always quote using this URN:urn:nbn:de:0296-matheon-7162
  • The classical valuation of an uncertain cash flow in discrete time consists in taking the expectation of the sum of the discounted future payoffs under a fixed probability measure, which is assumed to be known. Here we discuss the valuation problem in the context of Knightian uncertainty. Using results from the theory of convex risk measures, but without assuming the existence of a global reference measure, we derive a robust representation of concave valuations with an infinite time horizon, which specifies the interplay between model uncertainty and uncertainty about the time value of money.

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Metadaten
Author:Hans Föllmer, Irina Penner
URN:urn:nbn:de:0296-matheon-7162
Referee:Dirk Becherer
Document Type:Preprint, Research Center Matheon
Language:English
Date of first Publication:2010/09/23
Release Date:2010/09/23
Institute:Humboldt-Universität zu Berlin
Preprint Number:722
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