Paper Info
Title
Gain–loss based convex risk limits in discrete-time trading
Abstract
We present an approach for pricing and hedging in incomplete markets, which encompasses other recently introduced approaches for the same purpose. In a discrete time, finite space probability framework conducive to numerical computation we introduce a gain–loss ratio based restriction controlled by a loss aversion parameter, and characterize portfolio values which can be traded in discrete time to acceptability. The new risk measure specializes to a well-known risk measure (the Carr–Geman–Madan risk measure) for a specific choice of the risk aversion parameter, and to a robust version of the gain–loss measure (the Bernardo–Ledoit proposal) for a specific choice of thresholds. The result implies potentially tighter price bounds for contingent claims than the no-arbitrage price bounds. We illustrate the price bounds through numerical examples from option pricing.
Year
DOI
Venue
2011
10.1007/s10287-010-0122-7
Computational Management Science
Keywords
Field
DocType
Incomplete markets,Acceptability,Martingale measure,Contingent claim,Pricing
Spectral risk measure,Loss aversion,Financial economics,Mathematical optimization,Valuation of options,Risk-neutral measure,Dynamic risk measure,Discrete time and continuous time,Risk aversion,Risk measure,Mathematics
Journal
Volume
Issue
ISSN
8
3
1619-697X
Citations 
PageRank 
References 
0
0.34
6
Authors
1
Name
Order
Citations
PageRank
Mustafa Ç. Pınar113914.88