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Robustness of shortfall risk minimising strategies in the binomial model
Author(s) -
Favero Gino,
Vargiolu Tiziano
Publication year - 2003
Publication title -
pamm
Language(s) - English
Resource type - Journals
ISSN - 1617-7061
DOI - 10.1002/pamm.200310513
Subject(s) - robustness (evolution) , expected shortfall , econometrics , binomial (polynomial) , function (biology) , regular polygon , binomial distribution , mathematics , mathematical optimization , economics , statistics , risk management , finance , biochemistry , chemistry , geometry , evolutionary biology , biology , gene
Abstract In this paper we study the dependence on the loss function of the strategy which minimises the expected shortfall risk when dealing with a financial contingent claim in the particular situation of a binomial model. After having characterised the optimal strategies in the particular cases when the loss function is concave, linear or strictly convex, we analyse how optimal strategies change when we approximate a loss function with a sequence of suitable loss functions.