Good deal bounds induced by shortfall risk
We shall provide in this paper good deal pricing bounds for contingent claims induced by the shortfall risk with some loss function. Assumptions we impose on loss functions and contingent claims are very mild. We prove that the upper and lower bounds of good deal pricing bounds are expressed by convex risk measures on Orlicz hearts. In addition, we obtain its representation with the minimal penalty function. Moreover, we give a representation, for two simple cases, of good deal bounds and calculate the optimal strategies when a claim is traded at the upper or lower bounds of its good deal pricing bound.
References listed on IDEAS
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- Jeremy Staum, 2004. "Fundamental Theorems of Asset Pricing for Good Deal Bounds," Mathematical Finance, Wiley Blackwell, vol. 14(2), pages 141-161.
- Carr, Peter & Geman, Helyette & Madan, Dilip B., 2001. "Pricing and hedging in incomplete markets," Journal of Financial Economics, Elsevier, vol. 62(1), pages 131-167, October.
- Stefan Jaschke & Uwe Küchler, 2001. "Coherent risk measures and good-deal bounds," Finance and Stochastics, Springer, vol. 5(2), pages 181-200.
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