Electronic Resource
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:
Blackwell Publishing, Inc.
Mathematical finance
15 (2005), S. 0
ISSN:
1467-9965
Source:
Blackwell Publishing Journal Backfiles 1879-2005
Topics:
Mathematics
,
Economics
Notes:
The framework of coherent risk measures has been introduced by Artzner et al. (1999; Math. Finance 9, 203–228) in a single-period setting. Here, we investigate a similar framework in a multiperiod context. We add an axiom of dynamic consistency to the standard coherence axioms, and obtain a representation theorem in terms of collections of multiperiod probability measures that satisfy a certain product property. This theorem is similar to results obtained by Epstein and Schneider (2003; J. Econ. Theor. 113, 1–31) and Wang (2003; J. Econ. Theor. 108, 286–321) in a different axiomatic framework. We then apply our representation result to the pricing of derivatives in incomplete markets, extending results by Carr, Geman, and Madan (2001; J. Financial Econ. 32, 131–167) to the multiperiod case. We present recursive formulas for the computation of price bounds and corresponding optimal hedges. When no shortselling constraints are present, we obtain a recursive formula for price bounds in terms of martingale measures.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1111/j.1467-9965.2005.00252.x
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