A Simple Linear Programming Approach to Gain, Loss and Asset Pricing
Topics in Theoretical Economics, Vol. 2, No. 1, 2002
Posted: 17 Feb 2003
Bernardo and Ledoit (2000) develop a very appealing framework to compute pricing bounds based on what they call gain-loss ratio. Their method has many advantages and very interesting properties and so far one important drawback: The complexity of the numerical computation of the pricing bounds. In this note we provide a simple procedure for their computation which only entails solving a linear optimization program.
JEL Classification: C63, G12
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