Internal consistency—or “coherence”—of a price system is the basis of several key concepts in many fields, such as subjective probability (in Probability Theory), no-arbitrage pricing, and risk measures (in Mathematical Finance). Furthermore, Actuarial Mathematics uses coherence to describe the analyti- cal form of risk premia, and an analogous approach has recently been proposed for firms’ valuation. Technically, it amounts to a characterisation of functionals with particular properties (a typical goal in Functional Analysis), which translates into a numerical representation of preferences along the tradi- tional guidelines of Decision Theory, whose analogies with Mathematical Finance are numerous and really impressive. This is explored in this chapter.

Price Systems for Random Amounts / Castagnoli, Erio; Favero, Gino; Modesti, Paola. - STAMPA. - (2016), pp. 354-379. [10.4018/978-1-4666-9458-3.ch015]

Price Systems for Random Amounts

FAVERO, Gino;MODESTI, Paola Assunta Emilia
2016

Abstract

Internal consistency—or “coherence”—of a price system is the basis of several key concepts in many fields, such as subjective probability (in Probability Theory), no-arbitrage pricing, and risk measures (in Mathematical Finance). Furthermore, Actuarial Mathematics uses coherence to describe the analyti- cal form of risk premia, and an analogous approach has recently been proposed for firms’ valuation. Technically, it amounts to a characterisation of functionals with particular properties (a typical goal in Functional Analysis), which translates into a numerical representation of preferences along the tradi- tional guidelines of Decision Theory, whose analogies with Mathematical Finance are numerous and really impressive. This is explored in this chapter.
9781466694583
9781466694590
9781466694583
9781466694590
Price Systems for Random Amounts / Castagnoli, Erio; Favero, Gino; Modesti, Paola. - STAMPA. - (2016), pp. 354-379. [10.4018/978-1-4666-9458-3.ch015]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11381/2808520
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