Publication: Extending pricing rules with general risk
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2008-04
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Department of Mathematics and Statistics, Concordia University
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Abstract
The paper addresses pricing issues in imperfect and/or incomplete markets
if the risk level of the hedging strategy is measured by a general risk function. Convex
Optimization Theory is used in order to extend pricing rules for a wide family of risk functions,
including Deviation Measures, Expectation Bounded Risk Measures and Coherent
Measures of Risk. For imperfect markets the extended pricing rules reduce the bid-ask
spread. The paper ends by particularizing the findings so as to study with more detail
some concrete examples, including the Conditional Value at Risk and some properties of
the Standard Deviation
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Keywords
Incomplete and imperfect market, Risk measure and deviation measure,, Pricing rule, Convex optimization, Risk measure and deviation measure, Convex optimization