Information Geometry of Risks and Returns

Andrei N. Soklakov

Papers from arXiv.org

Abstract: We reveal a geometric structure underlying both hedging and investment products. The structure follows from a simple formula expressing investment risks in terms of returns. This informs optimal product designs. Optimal pure hedging (including cost-optimal products) and hybrid hedging (where a partial hedge is built into an optimal investment product) are considered. Duality between hedging and investment is demonstrated with applications to optimal risk recycling. A geometric interpretation of rationality is presented.

Date: 2022-06, Revised 2023-06
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Published in Risk, June (2023)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2206.08753

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