Gain-loss pricing under ambiguity of measure

Date

2010

Authors

Pınar, M. Ç.

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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.

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ESAIM - Control, Optimisation and Calculus of Variations

Publisher

E D P Sciences

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Published Version (Please cite this version)

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English