  I introduce novel preference formulations which capture aversion to ambiguity
about unknown and potentially time-varying volatility. I compare these
preferences with Gilboa and Schmeidler's maxmin expected utility as well as
variational formulations of ambiguity aversion. The impact of ambiguity
aversion is illustrated in a simple static model of portfolio choice, as well
as a dynamic model of optimal contracting under repeated moral hazard.
Implications for investor beliefs, optimal design of corporate securities, and
asset pricing are explored.
