Acceptability Indexes Via 'g-Expectations': An Application to Liquidity Risk

24 Pages Posted: 23 Mar 2012 Last revised: 27 Feb 2013

See all articles by Emanuela Rosazza Gianin

Emanuela Rosazza Gianin

University of Milano-Bicocca - Dip. di Statistica e Metodi Quantitativi

Carlo Sgarra

Politecnico di Milano- Dipartimento di Matematica

Date Written: February 5, 2013

Abstract

Recently several authors focused their attention on Acceptability Indexes (AI) and their applications in Finance. The AI notion turns out to be quite flexible and several applications in different directions have been proposed. In particular, in a paper by A. Cerny and D. Madan illiquid markets are modeled via AI and bid and ask prices are described through a "Conic Finance" approach. A different approach of dynamic type to bid and ask prices has been suggested by Bion-Nadal, taking into account both transaction costs and liquidity risk, and based on Time Consistent Pricing Procedures.

The purpose of the present paper is to suggest a further link between AI and risk measures based on the notion of g-expectation, and by this powerful tool to fill the gap between the static description of liquidity introduced by Cerny and Madan and the dynamic description provided by Bion-Nadal.

Keywords: Liquidity Risk, Acceptability Indexes, g-expectations, quasi-concave risk measures

JEL Classification: G12

Suggested Citation

Rosazza Gianin, Emanuela and Sgarra, Carlo, Acceptability Indexes Via 'g-Expectations': An Application to Liquidity Risk (February 5, 2013). Available at SSRN: https://ssrn.com/abstract=2027787 or http://dx.doi.org/10.2139/ssrn.2027787

Emanuela Rosazza Gianin

University of Milano-Bicocca - Dip. di Statistica e Metodi Quantitativi ( email )

Milan
Italy

Carlo Sgarra (Contact Author)

Politecnico di Milano- Dipartimento di Matematica ( email )

Piazza Leonardo da Vinci
Milan, Milano 20100
Italy