Multistage optimization of option portfolio using higher order coherent risk measures |
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Authors: | Yassine Matmoura Spiridon Penev |
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Institution: | 1. Ecole Centrale, Paris, France;2. The University of New South Wales, Sydney, Australia |
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Abstract: | Choosing a suitable risk measure to optimize an option portfolio’s performance represents a significant challenge. This paper is concerned with illustrating the advantages of Higher order coherent risk measures to evaluate option risk’s evolution. It discusses the detailed implementation of the resulting dynamic risk optimization problem using stochastic programming. We propose an algorithmic procedure to optimize an option portfolio based on minimization of conditional higher order coherent risk measures. Illustrative examples demonstrate some advantages in the performance of the portfolio’s levels when higher order coherent risk measures are used in the risk optimization criterion. |
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Keywords: | Coherent risk measures Duality Average value-at-risk Monte Carlo simulation Kusuoka measure Stochastic programming |
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