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Risk measures and efficient use of capital


Artzner, Philippe; Delbaen, Freddy; Koch-Medina, Pablo (2009). Risk measures and efficient use of capital. ASTIN Bulletin, 39(1):101-116.

Abstract

This paper is concerned with clarifying the link between risk measurement and capital efficiency. For this purpose we introduce risk measurement as the minimum cost of making a position acceptable by adding an optimal combination of multiple eligible assets. Under certain assumptions, it is shown that these risk measures have properties similar to those of coherent risk measures. The motivation for this paper was the study of a multi-currency setting where it is natural to use simultaneously a domestic and a foreign asset as investment vehicles to inject the capital necessary to make an unacceptable position acceptable. We also study what happens when one changes the unit of account from domestic to foreign currency and are led to the notion of compatibility of risk measures. In addition, we aim to clarify terminology in the field.

This paper is concerned with clarifying the link between risk measurement and capital efficiency. For this purpose we introduce risk measurement as the minimum cost of making a position acceptable by adding an optimal combination of multiple eligible assets. Under certain assumptions, it is shown that these risk measures have properties similar to those of coherent risk measures. The motivation for this paper was the study of a multi-currency setting where it is natural to use simultaneously a domestic and a foreign asset as investment vehicles to inject the capital necessary to make an unacceptable position acceptable. We also study what happens when one changes the unit of account from domestic to foreign currency and are led to the notion of compatibility of risk measures. In addition, we aim to clarify terminology in the field.

Citations

12 citations in Web of Science®
11 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2009
Deposited On:22 May 2015 13:00
Last Modified:05 Apr 2016 19:15
Publisher:Ceuterick S.A./Peeters
ISSN:0515-0361
Publisher DOI:https://doi.org/10.2143/AST.39.1.2038058
Related URLs:http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=8883662&fileId=S0515036100000052
Other Identification Number:merlin-id:9568
Permanent URL: https://doi.org/10.5167/uzh-110817

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