On the shortfall risk control: a refinement of the quantile hedging method

DOI10.1515/STRM-2014-1169MaRDI QIDQ254506zbMATH OpenOpenAlexFDO

Authors Michał Barski

Publication date 8 March 2016

Published in Statistics \& Risk Modeling (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1402.3725

zbMATH Keywords

bankruptcy prohibitionconditional testsNeyman-Pearson lemmaquantile hedgingshortfall constraints

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Generalizations of martingales (60G48)

Abstract: The issue of constructing a risk minimizing hedge under an additional almost-surely type constraint on the shortfall profile is examined. Several classical risk minimizing problems are adapted to the new setting and solved. In particular, the bankruptcy threat of optimal strategies appearing in the classical risk minimizing setting is ruled out. The existence and concrete forms of optimal strategies in a general semimartingale market model with the use of conditional statistical tests are proven. The well known quantile hedging method as well as the classical Neyman-Pearson lemma are generalized. Optimal hedging strategies with shortfall constraints in the Black-Scholes and exponential Poisson model are explicitly determined.

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Cited in

(11)

• On shortfall risk minimization for game options
• Quantile hedging
• Large losses–-probability minimizing approach
• Quantile hedging pension payoffs: an analysis of investment incentives
• The martingale method of shortfall risk minimization in a discrete time market
• Shortfall risk minimization versus symmetric (quadratic) hedging
• On a robustness of quantile hedging: Complete market's case
• Efficient hedging with coherent risk measure
• Quantile criterion-based control of the securities portfolio with a nonzero ruin probability
• Hedging under multiple risk constraints
• Minimizing shortfall risk and applications to finance and insurance problems

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