Article ID: | iaor20131075 |
Volume: | 227 |
Issue: | 1 |
Start Page Number: | 190 |
End Page Number: | 198 |
Publication Date: | May 2013 |
Journal: | European Journal of Operational Research |
Authors: | Penev Spiridon, Matmoura Yassine |
Keywords: | risk |
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.