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Gain-loss pricing under ambiguity of measure

Published online by Cambridge University Press:  08 November 2008

Mustafa Ç. Pınar
Mustafa Ç. Pınar*
Affiliation:
Department of Industrial Engineering, Bilkent University, 06800 Ankara, Turkey. mustafap@bilkent.edu.tr
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Abstract

Motivated by the observation that the gain-loss criterion, while offering economically meaningful prices of contingent claims, is sensitive to the reference measure governing the underlying stock price process (a situation referred to as ambiguity of measure), we propose a gain-loss pricing model robust to shifts in the reference measure. Using a dual representation property of polyhedral risk measures we obtain a one-step, gain-loss criterion based theorem of asset pricing under ambiguity of measure, and illustrate its use.

Keywords

Contingent claimpricinggain-loss ratiohedgingmartingalesstochastic programmingrisk measures
Type
Research Article
Information
ESAIM: Control, Optimisation and Calculus of Variations , Volume 16 , Issue 1 , January 2010 , pp. 132 - 147
Copyright
© EDP Sciences, SMAI, 2008

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