Weakening the Gain-Loss-Ratio measure to make it stronger

Jan Voelzke

No 3114, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: The Gain-Loss-Ratio, proposed by Bernardo and Ledoit (2000), evaluates the attractiveness of an investment opportunity for an investor with a given stochastic discount factor. It can either be used as a performance measure on a market with known prices or to derive price-intervals in incomplete markets. For both applications, there is a considerable theoretical drawback: It reaches infinity for nontrivial cases in many standard models with continuous probability space. In this paper, a more general ratio is proposed, which includes the original Gain-Loss-Ratio as a limit case. This so-called "Substantial Gain-Loss-Ratio" is applicable in case of continuous probabilities. In addition, in its function as a performance measure it helps illuminate the source respectively the distribution of out-performance, that a portfolio reveals.

Keywords: Gain-loss ratio; acceptability index; incomplete markets; good-deal bounds (search for similar items in EconPapers)
JEL-codes: G11 G12 G13 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.wiwi.uni-muenster.de/cqe/sites/cqe/fil ... r/CQE_WP_31_2014.pdf Version of June, 2014 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cqe:wpaper:3114

Access Statistics for this paper

More papers in CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster Am Stadtgraben 9, 48143 Münster, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Susanne Deckwitz ().