Composition of Time-Consistent Dynamic Monetary Risk Measures in Discrete Time

  • Date: 03/25/2008

Michael Kupper (ETH Zurich)


University of British Columbia


In discrete time, every time-consistent dynamic monetary risk measure
can be written as a composition of one-step risk measures. We exploit
this structure to give new dual representation results for
time-consistent convex monetary risk measures in terms of one-step
penalty functions.We first study risk measures for random variables
modeling financial positions at a fixed future time. Then we consider
the more general case of risk measures that depend on stochastic
processes describing the evolution of financial positions. In both
cases the new representations allow for a simple composition of
one-step risk measures in the dual. We discuss several explicit
examples and provide connections to the recently introduced class of
dynamic variational preferences. It is joint work with Patrick
Cheridito (Princeton University).

Other Information: 

MITACS Math Finance Seminar 2007


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