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Satisfying convex risk limits by trading

Author

Listed:
  • Kasper Larsen
  • Traian Pirvu
  • Steven Shreve
  • Reha Tütüncü

Abstract

A random variable, representing the final position of a trading strategy, is deemed acceptable if under each of a variety of probability measures its expectation dominates a floor associated with the measure. The set of random variables representing pre-final positions from which it is possible to trade to final acceptability is characterized. In particular, the set of initial capitals from which one can trade to final acceptability is shown to be a closed half-line $[\xi(0),\infty)$ . Methods for computing $\xi(0)$ are provided, and the application of these ideas to derivative security pricing is developed. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Kasper Larsen & Traian Pirvu & Steven Shreve & Reha Tütüncü, 2005. "Satisfying convex risk limits by trading," Finance and Stochastics, Springer, vol. 9(2), pages 177-195, April.
    • Handle: RePEc:spr:finsto:v:9:y:2005:i:2:p:177-195
    DOI: 10.1007/s00780-004-0137-4
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    Citations

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    Cited by:

    1. Georg Pflug & Nancy Wozabal, 2010. "Asymptotic distribution of law-invariant risk functionals," Finance and Stochastics, Springer, vol. 14(3), pages 397-418, September.
    2. Mingxin Xu, 2006. "Risk measure pricing and hedging in incomplete markets," Annals of Finance, Springer, vol. 2(1), pages 51-71, January.
    3. Takuji Arai & Masaaki Fukasawa, 2011. "Convex risk measures for good deal bounds," Papers 1108.1273, arXiv.org.

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