Best Gain Loss Ratio in Continuous Time
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Fri, 02/03/2012 14:15 |
Sara Biagini (Unipi) |
Nomura Seminar  |
DH 1st floor SR |
| The use of gain-loss ratio as a measure of attractiveness has been introduced by Bernardo and Ledoit. In their well-known paper, they show that gain-loss ratio restrictions have a dual representation in terms of restricted pricing kernels. In spite of its clear financial significance, gain-loss ratio has been largely ignored in the mathematical finance literature, with few exceptions (Cherny and Madan, Pinar). The main reason is intrinsic lack of good mathematical properties. This paper aims to be a rigorous study of gain-loss ratio and its dual representations in a continuous-time market setting, placing it in the context of risk measures and acceptability indexes. We also point out (and correctly reformulate) an erroneous statement made by Bernardo and Ledoit in their main result. This is joint work with M. Pinar. | |||