Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201634
Authors: 
Obradović, Lazar
Year of Publication: 
2019
Series/Report no.: 
Center for Mathematical Economics Working Papers No. 609
Abstract: 
This paper introduces a (coherent) risk measure that describes the uncertainty of the model (represented by a probability measure P₀) by a set Pᵧ of probability measures each of which has a Radon-Nikodym's derivative (with respect to P₀) that lies within the interval [λ; 1/λ] for some constant λ ϵ (0,1]. Economic considerations are discussed and an explicit representation is obtained that gives a connection to both the expected loss of the financial position and its average value-at-risk. Optimal portfolio analysis is performed - different optimization criteria lead to Merton portfolio. Comparison with related problems reveals examples of extreme sensitivity of optimal portfolios to model parameters and the choice of risk measure.
Subjects: 
Risk measure
Model uncertainty
Value at risk
Average value at risk
Optimal portfolio
Merton portfolio
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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