eprintid: 10081491
rev_number: 14
eprint_status: archive
userid: 608
dir: disk0/10/08/14/91
datestamp: 2019-09-13 10:12:46
lastmod: 2020-02-12 16:13:08
status_changed: 2019-09-13 10:12:46
type: article
metadata_visibility: show
creators_name: Balbas, A
creators_name: Garrido, J
creators_name: Okhrati, R
title: Good deal indices in asset pricing: actuarial and financial implications
ispublished: pub
divisions: UCL
divisions: A01
divisions: B04
divisions: C05
divisions: F44
keywords: Risk measure; Compatibility between prices and risks; Good deal size measurement; Actuarial and Önancial implications.
note: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
abstract: 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
date: 2019-07
date_type: published
publisher: WILEY
official_url: https://doi.org/10.1111/itor.12424
oa_status: green
full_text_type: other
language: eng
primo: open
primo_central: open_green
verified: verified_manual
elements_id: 1687804
doi: 10.1111/itor.12424
lyricists_name: Okhrati, Ramin
lyricists_id: ROKHR99
actors_name: Okhrati, Ramin
actors_id: ROKHR99
actors_role: owner
full_text_status: public
publication: International Transactions In Operational Research
volume: 26
number: 4
pagerange: 1475-1503
pages: 29
issn: 1475-3995
citation:        Balbas, A;    Garrido, J;    Okhrati, R;      (2019)    Good deal indices in asset pricing: actuarial and financial implications.                   International Transactions In Operational Research , 26  (4)   pp. 1475-1503.    10.1111/itor.12424 <https://doi.org/10.1111/itor.12424>.       Green open access   
 
document_url: https://discovery.ucl.ac.uk/id/eprint/10081491/1/good_deal_indices.pdf