The Schmeidler expected utility model : Theory, implications, and an application to European call options

Abstract: In this essay we present a self-contained proof of the Schmeidler expected utility theorem. Furthermore, we give an overview of the implications of today with focus on the optimal investment with non-additive expected utility. Finally, an application to pricing of European call options is conducted where ambiguity in the market is shown to be present, and forecasted using ARIMA models.