The best gain-loss ratio is a poor performance measure
The gain-loss ratio is known to enjoy very good properties from a normative point of view. As a confirmation, we show that the best market gain-loss ratio in the presence of a random endowment is an acceptability index and we provide its dual representation for general probability spaces. However, the gain-loss ratio was designed for finite $\Omega$, and works best in that case. For general $\Omega$ and in most continuous time models, the best gain-loss is either infinite or fails to be attained. In addition, it displays an odd behaviour due to the scale invariance property, which does not seem desirable in this context. Such weaknesses definitely prove that the (best) gain-loss is a poor performance measure.
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.:
- John H. Cochrane & Jesus Saa-Requejo, 2000.
"Beyond Arbitrage: Good-Deal Asset Price Bounds in Incomplete Markets,"
Journal of Political Economy,
University of Chicago Press, vol. 108(1), pages 79-119, February.
- John H. Cochrane & Jesus Saa-Requejo, 1996. "Beyond Arbitrage: "Good-Deal" Asset Price Bounds in Incomplete Markets," NBER Working Papers 5489, National Bureau of Economic Research, Inc.
- John H. Cochrane & Jesús Saá-Requejo, 1998. "Beyond Arbitrage: "Good-Deal" Asset Price Bounds in Incomplete Markets," CRSP working papers 430, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- PInar, Mustafa Ç. & Salih, AslIhan & CamcI, Ahmet, 2010. "Expected gain-loss pricing and hedging of contingent claims in incomplete markets by linear programming," European Journal of Operational Research, Elsevier, vol. 201(3), pages 770-785, March.
- 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.
- Aytaç Ílhan & Mattias Jonsson & Ronnie Sircar, 2005. "Optimal investment with derivative securities," Finance and Stochastics, Springer, vol. 9(4), pages 585-595, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1209.6439. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.