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Good deals in markets with friction

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorBalbás, Alejandro
dc.contributor.authorBalbás, Beatriz
dc.contributor.authorBalbás, Raquel
dc.date.accessioned2014-01-20T17:30:01Z
dc.date.available2015-01-01T23:00:05Z
dc.date.issued2013-06
dc.description.abstractThis paper studies an optimization problem involving pay-offs of (perhaps dynamic) investment strategies. The pay-off is the decision variable, the expected pay-off is maximized and its risk is minimized. The pricing rule may incorporate transaction costs and the risk measure is continuous, coherent and expectation bounded.We will prove the necessity of dealing with pricing rules such that there exists an essentially bounded stochastic discount factor that must also be bounded from below by a strictly positive value. Otherwise, good deals will be available to traders, i.e. depending on the selected risk measure, investors can choose pay-offs whose (risk, return) will be as close as desired to (−1,1) or (−1,1). This pathological property still holds for vector risk measures (i.e. if we minimize a vector-valued function whose components are risk measures). It is worth pointing out that, essentially, bounded stochastic discount factors are not usual in the financial literature. In particular, the most famous frictionless, complete and arbitrage-free pricing models imply the existence of good deals for every continuous, coherent and expectation bounded (scalar or vector) measure of risk, and the incorporation of transaction costs will not guarantee the solution of this caveaten
dc.description.sponsorshipThis research was partially supported by RD_Sistemas SA, Welzia Management SGIIC SA, and Ministerio de Economía, Spain (grants ECO2009-14457-C04 and ECO2012-39031-C02-01)en
dc.description.statusPublicadoes
dc.format.mimetypeapplication/pdf
dc.identifier.bibliographicCitationQuantitative Finance, vol. 13, no. 6, pp. 827-836en
dc.identifier.doi10.1080/14697688.2013.780132
dc.identifier.issn1469-7688
dc.identifier.publicationfirstpage827
dc.identifier.publicationissue6
dc.identifier.publicationlastpage836
dc.identifier.publicationtitleQuantitative Financeen
dc.identifier.publicationvolume13
dc.identifier.urihttps://hdl.handle.net/10016/18157
dc.identifier.uxxiAR/0000013496
dc.language.isoenges
dc.publisherTaylor & Francisen
dc.relation.isversionofhttp://hdl.handle.net/10016/10362
dc.relation.projectIDGobierno de España. ECO2009-14457-C04es
dc.relation.projectIDGobierno de España. ECO2012-39031-C02-01
dc.relation.publisherversionhttp://dx.doi.org/10.1080/14697688.2013.780132
dc.rightsTaylor & Francisen
dc.rights.accessRightsopen accessen
dc.subject.jelG1
dc.subject.jelG11
dc.subject.jelG12
dc.subject.jelG13
dc.subject.otherRisk measuresen
dc.subject.otherTransaction costsen
dc.subject.otherPortfolio optimizationen
dc.subject.otherArbitrage relationshipen
dc.titleGood deals in markets with frictionen
dc.typeresearch article*
dc.type.hasVersionAM*
dspace.entity.typePublication
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