Hedging under multiple risk constraints

Ying Jiao (), Olivier Klopfenstein () and Peter Tankov ()
Additional contact information
Ying Jiao: Université Claude Bernard – Lyon I
Olivier Klopfenstein: EDF R&D
Peter Tankov: Université Paris-Diderot (Paris 7)

Finance and Stochastics, 2017, vol. 21, issue 2, No 2, 396 pages

Abstract: Abstract Motivated by the asset–liability management problems under shortfall risk constraints, we consider in a general discrete-time framework the problem of finding the least expensive portfolio whose shortfalls with respect to a given set of stochastic benchmarks are bounded by a specific shortfall risk measure. We first show how the price of this portfolio may be computed recursively by dynamic programming for different shortfall risk measures, in complete and incomplete markets. We then focus on the specific situation where the shortfall risk constraints are imposed at each period on the next-period shortfalls, and obtain explicit results. Finally, we apply our results to a realistic asset–liability management problem of an energy company, and show how the shortfall risk constraints affect the optimal hedging of liabilities.

Keywords: Multiple risk constraints; Snell envelope; Dynamic programming; Shortfall risk; Asset–liability management; 91G10; 93E20 (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.com/10.1007/s00780-017-0326-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:finsto:v:21:y:2017:i:2:d:10.1007_s00780-017-0326-6

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-017-0326-6

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().