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Title:Distribution-Invariant Dynamic Risk Measures PDF Logo
Authors:Weber, Stefan
Issue Date:2003
Series/Report no.:Discussion papers of interdisciplinary research project 373 2003,53
Abstract:The paper provides an axiomatic characterization of dynamic risk measures for multi-period financial positions. For the special case of a terminal cash flow, we require that risk depends on its conditional distribution only. We prove a representation theorem for dynamic risk measures and investigate their relation to static risk measures. Two notions of dynamic consistency are proposed. A key insight of the paper is that dynamic consistency and the notion of ?measure convex sets of probability measures? are intimately related. Measure convexity can be interpreted using the concept of compound lotteries. We characterize the class of static risk measures that represent consistent dynamic risk measures. It turns out that these are closely connected to shortfall risk. Under weak additional assumptions, static convex risk measures coincide with shortfall risk, if compound lotteries of acceptable respectively rejected positions are again acceptable respectively rejected. This result implies a characterization of dynamically consistent convex risk measures.
Subjects:Dynamic risk measure
capital requirement
measure of risk
dynamic consistency
measure convexity
shortfall risk
JEL:G11
G28
G18
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10050879
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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