We provide an axiomatic model of preferences over atemporal risks that generalizes Gul (1991) A Theory of Disappointment Aversion' by allowing risk aversion to be first order' at locations in the state space that do not correspond to certainty. Since the lotteries being valued by an agent in an...

Extreme market outcomes are often followed by a lack of liquidity and a lack of trade. This market collapse seems particularly acute for markets where traders rely heavily on a specific empirical model such as in derivative markets. Asset pricing and trading, in these cases, are intrinsically...

We investigate the dynamic portfolio problem of a market-maker for a derivative security whose preferences exhibit uncertainty aversion (Knightian uncertainty). The Choquet-expected utility implied by such preference is used to capture the feature that the trader is uncertain about which model...

This paper presents a competitive rational expectations model of spot and forward prices for multiple commodities that can be stored and/or converted. As a result of the conversion option, an equilibrium theory of basis spreads across commodities is derived. This extends the "theory of storage"...