Information Geometry of Risks and Returns
Copyright policy )Information Geometry of Risks and Returns
We reveal a geometric structure underlying both hedging and investment products. The structure follows from a simple formula expressing investment risks in terms of returns. This informs optimal product designs. Optimal pure hedging (including cost-optimal products) and hybrid hedging (where a partial hedge is built into an optimal investment product) are considered. Duality between hedging and investment is demonstrated with applications to optimal risk recycling. A geometric interpretation of rationality is presented.
25 pages, 2 figures
- Citigroup United States
FOS: Economics and business, FOS: Computer and information sciences, General Economics (econ.GN), Computer Science - Information Theory, Information Theory (cs.IT), Quantitative Finance - General Finance, General Finance (q-fin.GN), Economics - General Economics
FOS: Economics and business, FOS: Computer and information sciences, General Economics (econ.GN), Computer Science - Information Theory, Information Theory (cs.IT), Quantitative Finance - General Finance, General Finance (q-fin.GN), Economics - General Economics
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