Risky asset bid and ask prices “tailored” to the risk-aversion and the gain-propension of the traders are set up. They are calculated through the principle of the Extended Gini premium, a standard method used in non-life insurance. Explicit formulae for the most common stochastic distributions of risky returns, are calculated. Sufficient and necessary conditions for successful trading are also discussed.
Bid and Ask Prices Tailored to Traders' Risk Aversion and Gain Propension: a Normative Approach
TIBILETTI, Luisa
2012-01-01
Abstract
Risky asset bid and ask prices “tailored” to the risk-aversion and the gain-propension of the traders are set up. They are calculated through the principle of the Extended Gini premium, a standard method used in non-life insurance. Explicit formulae for the most common stochastic distributions of risky returns, are calculated. Sufficient and necessary conditions for successful trading are also discussed.
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