Dynamically consistent Choquet random walk and real investments

Robert Kast (1) , André Lapied (2)

1 LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée
2 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille

In the real investments literature, the investigated cash flow is assumed to follow some known stochastic process (e.g. Brownian motion) and the criterion to decide between investments is the discounted utility of their cash flows. However, for most new investments the investor may be ambiguous about the representation of uncertainty. In order to take such ambiguity into account, we refer to a discounted Choquet expected utility in our model. In such a setting some problems are to dealt with: dynamical consistency, here it is obtained in a recursive model by a weakened version of the axiom. Mimicking the Brownian motion as the limit of a random walk for the investment payoff process, we describe the latter as a binomial tree with capacities instead of exact probabilities on its branches and show what are its properties at the limit. We show that most results in the real investments literature are tractable in this enlarged setting but leave more room to ambiguity as both the mean and the variance of the underlying stochastic process are modified in our ambiguous model

Mots clés: random walk; Brownian motion; real options; optimal portofolio

Mots clés: Choquet integrals; conditional Choquet integrals

Domaines: Economies et finances

Robert Kast, André Lapied. Dynamically consistent Choquet random walk and real investments. 2010. ⟨hal-02817702v2⟩