Minimum yield principle and CC-VaR under partial market forecast

The work continues author’s investigations connected with applying continuous VaR-criterion (CC-VaR) in option markets. A situation, when the investor’s forecast about future probabilistic properties of an underlier is restricted by a partial view, is considered. The incompleteness of investor’s forecast is modeled by introducing into forecast some parameters whose values are chosen by investor market properties considered. A minimum yield principle (MYP) that suggests minimizing the investment yield by the choice of parameters’ values is postulated. By that the investor acquires some security for possible forecast mistakes. The theoretical properties of the principle introduced that has self-sufficient interest and simplifies the analysis in a variety of cases are investigated. Demonstration of the principle is realized analytically by two-sided exponential and uniform distributions and by numerical methods with beta-distributions. The results reassert the adequacy of the principle and of the computation algorithms.