Risk minimizing of derivatives via dynamic g-expectation and related topics
AbstractIn this paper, we investigate risk minimization problem of derivatives based on non-tradable underlyings by means of dynamic g-expectations which are slight different from conditional g-expectations. In this framework, inspired by  and , we introduce risk indifference price, marginal risk price and derivative hedge and obtain their corresponding explicit expressions. The interesting thing is that their expressions have nothing to do with nonlinear generator g, and one deep reason for this is due to the completeness of financial market. By giving three useful special risk minimization problems, we obtain the explicit optimal strategies with initial wealth involved, demonstrate some qualitative analysis among optimal strategies, risk aversion parameter and market price of risk, together with some economic interpretations.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1208.2068.
Date of creation: Aug 2012
Date of revision:
Contact details of provider:
Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rosazza Gianin, Emanuela, 2006. "Risk measures via g-expectations," Insurance: Mathematics and Economics, Elsevier, vol. 39(1), pages 19-34, August.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2006.
"Ambiguity Aversion, Robustness, and the Variational Representation of Preferences,"
Econometric Society, vol. 74(6), pages 1447-1498, November.
- Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
- Pirvu, Traian A. & Zhang, Huayue, 2012. "Optimal investment, consumption and life insurance under mean-reverting returns: The complete market solution," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 303-309.
- Ulrich Horst & Traian A. Pirvu & Gonçalo Dos Reis, 2010. "On Securitization, Market Completion and Equilibrium Risk Transfer," SFB 649 Discussion Papers SFB649DP2010-010, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Ying Hu & Peter Imkeller & Matthias Muller, 2005. "Utility maximization in incomplete markets," Papers math/0508448, arXiv.org.
- Stadje, Mitja, 2010. "Extending dynamic convex risk measures from discrete time to continuous time: A convergence approach," Insurance: Mathematics and Economics, Elsevier, vol. 47(3), pages 391-404, December.
- Jianming Xia, 2008. "Risk Aversion and Portfolio Selection in a Continuous-Time Model," Papers 0805.0618, arXiv.org, revised Dec 2011.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.