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