Minimizing Shortfall Risk and Applications to Finance and Insurance Problems
Pham, Huyên
Ann. Appl. Probab., Tome 12 (2002) no. 1, p. 143-172 / Harvested from Project Euclid
We consider a controlled process governed by $X^{x, \theta} = x + \int \theta dS + H^{\theta}$, where $S$ is a semimartingale, $\Theta$ the set of control processes . is a convex subset of $L(S)$ and ${H^{\theta} :\theta \in \Theta}$ is a concave family of adapted processes with finite variation. We study the problem of minimizing the shortfall risk defined as the expectation of the shortfall $(B - X_T^{x, \theta})_+$ weighted by some loss function, where $B$ is a given nonnegative measurable random variable. Such a criterion has been introduced by Föllmer and Leukert [Finance Stoch. 4 (1999) 117–146] motivated by a hedging problem in an incomplete financial market context:$\Theta = L(S)$ and $H^{\theta} \equiv 0$. Using change of measures and optional decomposition under constraints, we state an existence result to this optimization problem and show some qualitative properties of the associated value function. A verification theorem in terms of a dual control problem is established which is used to obtain a quantitative description of the solution. Finally, we give some applications to hedging problems in constrained portfolios, large investor and reinsurance models.
Publié le : 2002-02-14
Classification:  Shortfall risk minimization,  semimartingales,  optional decomposition under constraints,  duality theory,  finance and insurance,  93E20,  60G44,  60H05,  60H30,  90A46
@article{1015961159,
     author = {Pham, Huy\^en},
     title = {Minimizing Shortfall Risk and Applications to Finance and
		 Insurance Problems},
     journal = {Ann. Appl. Probab.},
     volume = {12},
     number = {1},
     year = {2002},
     pages = { 143-172},
     language = {en},
     url = {http://dml.mathdoc.fr/item/1015961159}
}
Pham, Huyên. Minimizing Shortfall Risk and Applications to Finance and
		 Insurance Problems. Ann. Appl. Probab., Tome 12 (2002) no. 1, pp.  143-172. http://gdmltest.u-ga.fr/item/1015961159/