In this paper we show how to deal with shortfall risk minimization in significant multinomial models with one or several risky assets. First we solve the problem when the market is complete, finding both the minimall shortfall risk as well as the optimal strategy. Then we solve the problem in the simplest case of an incomplete market, namely in the case of a single risky asset driven by a trinomial model.
Explicit solutions for shortfall risk minimization in multinomial models
VARGIOLU, TIZIANO
2002
Abstract
In this paper we show how to deal with shortfall risk minimization in significant multinomial models with one or several risky assets. First we solve the problem when the market is complete, finding both the minimall shortfall risk as well as the optimal strategy. Then we solve the problem in the simplest case of an incomplete market, namely in the case of a single risky asset driven by a trinomial model.
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