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

Jan Voelzke

Finance Research Letters, 2015, vol. 12, issue C, 58-66

Abstract: The Gain–Loss-Ratio, proposed by Bernardo and Ledoit (2000), 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 “Substantial Gain–Loss-Ratio” is applicable in case of continuous probabilities. Additionally, in its function as a performance measure it helps illuminate the source 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 G19 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:12:y:2015:i:c:p:58-66

DOI: 10.1016/j.frl.2014.11.007

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