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Measuring risk with multiple eligible assets


Farkas, Walter; Koch-Medina, Pablo; Munari, Cosimo-Andrea (2015). Measuring risk with multiple eligible assets. Mathematics and Financial Economics, 9(1):3-27.

Abstract

The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and continuity properties of these risk measures with respect to multiple eligible assets. Our finiteness and continuity results highlight the interplay between the acceptance set and the class of eligible portfolios. We present a simple, alternative approach to the dual representation of convex risk measures by directly applying to the acceptance set the external characterization of closed, convex sets. We prove that risk measures are nondegenerate if and only if the pricing functional admits a positive extension which is a supporting functional for the underlying acceptance set, and provide a characterization of when such extensions exist. Finally, we discuss applications to set-valued risk measures, superhedging with shortfall risk, and optimal risk sharing.

Abstract

The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and continuity properties of these risk measures with respect to multiple eligible assets. Our finiteness and continuity results highlight the interplay between the acceptance set and the class of eligible portfolios. We present a simple, alternative approach to the dual representation of convex risk measures by directly applying to the acceptance set the external characterization of closed, convex sets. We prove that risk measures are nondegenerate if and only if the pricing functional admits a positive extension which is a supporting functional for the underlying acceptance set, and provide a characterization of when such extensions exist. Finally, we discuss applications to set-valued risk measures, superhedging with shortfall risk, and optimal risk sharing.

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1 citation in Web of Science®
2 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:January 2015
Deposited On:18 Jan 2016 13:23
Last Modified:05 Apr 2016 19:55
Publisher:Springer
ISSN:1862-9679
Additional Information:The final publication is available at Springer via http://dx.doi.org/10.1007/s11579-014-0118-0
Publisher DOI:https://doi.org/10.1007/s11579-014-0118-0
Other Identification Number:merlin-id:10105

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