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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. [email protected]
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Abstract

Motivated by the observationthat 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 situationreferred 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 ofasset 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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