Satisfying convex risk limits by trading

Kasper Larsen (), Traian Pirvu (), Steven Shreve () and Reha Tütüncü ()

Finance and Stochastics, 2005, vol. 9, issue 2, 177-195

Abstract: A random variable, representing the final position of a trading strategy, is deemed acceptable if under each of a variety of probability measures its expectation dominates a floor associated with the measure. The set of random variables representing pre-final positions from which it is possible to trade to final acceptability is characterized. In particular, the set of initial capitals from which one can trade to final acceptability is shown to be a closed half-line $[\xi(0),\infty)$ . Methods for computing $\xi(0)$ are provided, and the application of these ideas to derivative security pricing is developed. Copyright Springer-Verlag Berlin/Heidelberg 2005

Keywords: Convex risk measures; continuous trading; portfolio representation (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/s00780-004-0137-4

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