IDEAS home Printed from https://ideas.repec.org/a/eee/dyncon/v76y2017icp136-151.html
   My bibliography  Save this article

Equal risk pricing under convex trading constraints

Author

Listed:
  • Guo, Ivan
  • Zhu, Song-Ping

Abstract

In an incomplete market model where convex trading constraints are imposed upon the underlying assets, it is no longer possible to obtain unique arbitrage-free prices for derivatives using standard replication arguments. Most existing derivative pricing approaches involve the selection of a suitable martingale measure or the optimisation of utility functions as well as risk measures from the perspective of a single trader.

Suggested Citation

  • Guo, Ivan & Zhu, Song-Ping, 2017. "Equal risk pricing under convex trading constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 136-151.
    • Handle: RePEc:eee:dyncon:v:76:y:2017:i:c:p:136-151
    DOI: 10.1016/j.jedc.2017.01.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0165188917300131
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jedc.2017.01.005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fabio Bellini & Marco Frittelli, 2002. "On the Existence of Minimax Martingale Measures," Mathematical Finance, Wiley Blackwell, vol. 12(1), pages 1-21, January.
    2. Mingxin Xu, 2006. "Risk measure pricing and hedging in incomplete markets," Annals of Finance, Springer, vol. 2(1), pages 51-71, January.
    3. Barrieu, Pauline & El Karoui, Nicole, 2005. "Inf-convolution of risk measures and optimal risk transfer," LSE Research Online Documents on Economics 2829, London School of Economics and Political Science, LSE Library.
    4. Marco Frittelli, 2000. "The Minimal Entropy Martingale Measure and the Valuation Problem in Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 10(1), pages 39-52, January.
    5. Richard Rouge & Nicole El Karoui, 2000. "Pricing Via Utility Maximization and Entropy," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 259-276, April.
    6. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
    7. Thomas Goll & Ludger Rüschendorf, 2001. "Minimax and minimal distance martingale measures and their relationship to portfolio optimization," Finance and Stochastics, Springer, vol. 5(4), pages 557-581.
    8. Pauline Barrieu & Nicole El Karoui, 2005. "Inf-convolution of risk measures and optimal risk transfer," Finance and Stochastics, Springer, vol. 9(2), pages 269-298, April.
    9. Julien Hugonnier & Dmitry Kramkov & Walter Schachermayer, 2005. "On Utility‐Based Pricing Of Contingent Claims In Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 15(2), pages 203-212, April.
    10. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    11. Marek Musiela & Thaleia Zariphopoulou, 2004. "An example of indifference prices under exponential preferences," Finance and Stochastics, Springer, vol. 8(2), pages 229-239, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Godin, Frédéric & Trottier, Denis-Alexandre, 2021. "Option pricing in regime-switching frameworks with the Extended Girsanov Principle," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 116-129.
    2. Alexandre Carbonneau & Fr'ed'eric Godin, 2020. "Equal Risk Pricing of Derivatives with Deep Hedging," Papers 2002.08492, arXiv.org, revised Jun 2020.
    3. Alexandre Carbonneau & Frédéric Godin, 2023. "Deep Equal Risk Pricing of Financial Derivatives with Non-Translation Invariant Risk Measures," Risks, MDPI, vol. 11(8), pages 1-27, August.
    4. Alexandre Carbonneau & Fr'ed'eric Godin, 2021. "Deep equal risk pricing of financial derivatives with non-translation invariant risk measures," Papers 2107.11340, arXiv.org.
    5. Lockwood, Jimmy & Lockwood, Larry & Miao, Hong & Ramchander, Sanjay & Yang, Dongxiao, 2022. "The information content of ETF options," Global Finance Journal, Elsevier, vol. 53(C).
    6. Lu, Xiaoping & Yan, Dong & Zhu, Song-Ping, 2022. "Optimal exercise of American puts with transaction costs under utility maximization," Applied Mathematics and Computation, Elsevier, vol. 415(C).
    7. Saeed Marzban & Erick Delage & Jonathan Yumeng Li, 2021. "Deep Reinforcement Learning for Equal Risk Pricing and Hedging under Dynamic Expectile Risk Measures," Papers 2109.04001, arXiv.org.
    8. Alexandre Carbonneau & Fr'ed'eric Godin, 2021. "Deep Equal Risk Pricing of Financial Derivatives with Multiple Hedging Instruments," Papers 2102.12694, arXiv.org.
    9. Saeed Marzban & Erick Delage & Jonathan Yumeng Li, 2020. "Equal Risk Pricing and Hedging of Financial Derivatives with Convex Risk Measures," Papers 2002.02876, arXiv.org, revised Sep 2020.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mingxin Xu, 2006. "Risk measure pricing and hedging in incomplete markets," Annals of Finance, Springer, vol. 2(1), pages 51-71, January.
    2. Barrieu, Pauline & El Karoui, Nicole, 2005. "Inf-convolution of risk measures and optimal risk transfer," LSE Research Online Documents on Economics 2829, London School of Economics and Political Science, LSE Library.
    3. Knispel, Thomas & Laeven, Roger J.A. & Svindland, Gregor, 2016. "Robust optimal risk sharing and risk premia in expanding pools," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 182-195.
    4. Michail Anthropelos & Nikolaos E. Frangos & Stylianos Z. Xanthopoulos & Athanasios N. Yannacopoulos, 2008. "On contingent claims pricing in incomplete markets: A risk sharing approach," Papers 0809.4781, arXiv.org, revised Feb 2012.
    5. Teemu Pennanen, 2014. "Optimal investment and contingent claim valuation in illiquid markets," Finance and Stochastics, Springer, vol. 18(4), pages 733-754, October.
    6. Hirbod Assa & Nikolay Gospodinov, 2018. "Market consistent valuations with financial imperfection," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 41(1), pages 65-90, May.
    7. Rohini Kumar & Frederick Forrest Miller & Hussein Nasralah & Stephan Sturm, 2024. "Risk-indifference Pricing of American-style Contingent Claims," Papers 2409.00095, arXiv.org.
    8. Daniel Lacker, 2018. "Liquidity, Risk Measures, and Concentration of Measure," Mathematics of Operations Research, INFORMS, vol. 43(3), pages 813-837, August.
    9. Jana Bielagk & Arnaud Lionnet & Gonçalo dos Reis, 2015. "Equilibrium pricing under relative performance concerns," Working Papers hal-01245812, HAL.
    10. Marcelo Brutti Righi & Marlon Ruoso Moresco, 2024. "Inf-convolution and optimal risk sharing with countable sets of risk measures," Annals of Operations Research, Springer, vol. 336(1), pages 829-860, May.
    11. Michael Mania & Martin Schweizer, 2005. "Dynamic exponential utility indifference valuation," Papers math/0508489, arXiv.org.
    12. Becherer, Dirk, 2003. "Rational hedging and valuation of integrated risks under constant absolute risk aversion," Insurance: Mathematics and Economics, Elsevier, vol. 33(1), pages 1-28, August.
    13. Pal, Soumik, 2007. "Computing strategies for achieving acceptability: A Monte Carlo approach," Stochastic Processes and their Applications, Elsevier, vol. 117(11), pages 1587-1605, November.
    14. Michail Anthropelos & Scott Robertson & Konstantinos Spiliopoulos, 2015. "The pricing of contingent claims and optimal positions in asymptotically complete markets," Papers 1509.06210, arXiv.org, revised Sep 2016.
    15. Stadje, M.A. & Pelsser, A., 2014. "Time-Consistent and Market-Consistent Evaluations (Revised version of 2012-086)," Discussion Paper 2014-002, Tilburg University, Center for Economic Research.
    16. Hirbod Assa & Peng Liu, 2024. "Factor risk measures," Papers 2404.08475, arXiv.org.
    17. Antoon Pelsser & Mitja Stadje, 2014. "Time-Consistent And Market-Consistent Evaluations," Mathematical Finance, Wiley Blackwell, vol. 24(1), pages 25-65, January.
    18. Xia Han & Qiuqi Wang & Ruodu Wang & Jianming Xia, 2021. "Cash-subadditive risk measures without quasi-convexity," Papers 2110.12198, arXiv.org, revised Jan 2025.
    19. Owari, Keita & 尾張, 圭太, 2008. "Robust Exponential Hedging and Indifference Valuation," Discussion Papers 2008-09, Graduate School of Economics, Hitotsubashi University.
    20. Zou, Zhenfeng & Wu, Qinyu & Xia, Zichao & Hu, Taizhong, 2023. "Adjusted Rényi entropic Value-at-Risk," European Journal of Operational Research, Elsevier, vol. 306(1), pages 255-268.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:dyncon:v:76:y:2017:i:c:p:136-151. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jedc .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.