Martingale characterizations of coherent acceptability measures


Roorda, Berend (2002) Martingale characterizations of coherent acceptability measures.

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Abstract:The coherent risk framework is linked to martingale valuation by adding hedgeinvariance as a fifth axiom, motivated by the concept of consistent hedging. The resulting subclass, called coherent pre-hedge (CoPr) measures, is characterized by a martingale condition on the test set that underlies a coherent measure. It is also made explicit how consistent hedging, optimal as well as non-optimal, transforms the test set of a given coherent measure into a martingale test set. These results are put in perspective of the fundamental theorems of asset pricing and the concept of valuation bounds.
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Faculty of Behavioural, Management and Social sciences (BMS)
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