Trade-off Between Robust Risk Measurement and Market Principles

Hirbod Assa ()
Additional contact information
Hirbod Assa: University of Liverpool

Journal of Optimization Theory and Applications, 2015, vol. 166, issue 1, No 15, 306-320

Abstract: Abstract Recently, it was shown that coherent risk measures are not robust with respect to changes in large data. On the other hand, in this article, we show that robust risk measures always generate pathological financial positions, Good Deals. This leaves a decision maker with a problem to either choose a robust risk measurement approach in a day-to-day real life decision making or an approach, which can correctly price financial products by considering the market principals such as No Good Deal assumption. In this paper, after stating clearly this problem, we propose a solution by introducing the minimal distribution-invariant modification of the risk measure, which does not produce any Good Deal and also is more robust comparing to the family of coherent risk measures.

Keywords: Risk measures; Pricing rules; Good deals; Robustness; Representative agent hedging problem; Minimal modification; 91B16; 91B50; 91B70 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s10957-014-0593-8 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:joptap:v:166:y:2015:i:1:d:10.1007_s10957-014-0593-8

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10957/PS2

DOI: 10.1007/s10957-014-0593-8

Access Statistics for this article

Journal of Optimization Theory and Applications is currently edited by Franco Giannessi and David G. Hull

More articles in Journal of Optimization Theory and Applications from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().