OPTIMAL PORTFOLIO CHOICE BASED ON α-MEU UNDER AMBIGUITY

We first propose and characterize a model of alpha-maxmin expected utility (alpha-MEU), differentiating ambiguity and ambiguity attitude. A key feature of our model is that it achieves a separation between ambiguity, identified as a characteristic of the decision-maker's subjective beliefs, and ambiguity attitude, a characteristic of the decision-maker's tastes. This article, adopting the recursive multiple-priors utility, gives the representation of alpha-MEU. Then, the optimal consumption and portfolio is studied under the general framework. Finally, the optimal portfolio is derived for two special cases of utility. The mathematical techniques to the martingale, the Malliavin calculus, and the backward stochastic differential equation (BSDE) are utilized.