%0 Journal Article
%@ 1475-3995
%A Balbas, A
%A Garrido, J
%A Okhrati, R
%D 2019
%F discovery:10081491
%I WILEY
%J International Transactions In Operational Research
%K Risk measure; Compatibility between prices and risks; Good deal size measurement; Actuarial and Önancial implications.
%N 4
%P 1475-1503
%T Good deal indices in asset pricing: actuarial and financial implications
%U https://discovery.ucl.ac.uk/id/eprint/10081491/
%V 26
%X We integrate into a single optimization problem a risk measure, beyond  the variance, and either arbitrage free real market quotations or Önancial pricing rules  generated by an arbitrage free stochastic pricing model. A sequence of investment  strategies such that the couple (expected-return,risk ) diverges to (+1; 1) will be  called a good deal. The existence of such a sequence is equivalent to the existence  of an alternative sequence of strategies such that the couple (risk,price) diverges to  (1; 1). Moreover, by appropriately adding the riskless asset, every good deal may  generate a new one only composed of strategies priced at one.  We will see that good deals often exist in practice, and the main objective of this  paper will be to measure the good deal size. The provided good deal indices will  equal an optimal ratio between both risk and price, and there will exist alternative  interpretations of these indices. They also provide the minimum relative (per dollar)  price modiÖcation that prevents the existence of good deals. Moreover, they will be  a crucial instrument to detect those securities or marketed claims which are over- or  under-priced.  Many classical actuarial and Önancial optimization problems may generate wrong  solutions if the used market quotations or stochastic pricing models do not prevent  the existence of good deals. This fact is illustrated in the paper, and we point out  how the provided good deal indices may be useful to overcome this caveat. Numerical  experiments are included as we
%Z This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.