A continuous selection for optimal portfolios under convex risk measures does not always exist (Q2304904)

This paper deals with the existence of continuous selections for a class of optimal set mappings that play an important role in several areas of mathematical finance, including capital adequacy, pricing, hedging, and capital allocation. In that context, one is often confronted with the problem of mitigating the risk of a given financial position. Possible solution is to set up a suitable capital buffer whose function is to absorb future larger-than-expected losses. This capital reserve is usually held in the form of a portfolio of some financial securities called the eligible assets. Mathematically, this problem leads naturally to considering set-valued maps that associate to each financial position the corresponding set of optimal hedging portfolios, i.e., of portfolios that ensure acceptability at the cheapest cost. Among other properties of such maps, the ability to ensure lower semicontinuity and continuous selections is key from an operational perspective. It is known that lower semicontinuity generally fails in an infinite-dimensional setting. In this paper, the authors show that neither lower semicontinuity nor, more surprisingly, the existence of continuous selections can be a priori guaranteed even in a finite-dimensional setting. In particular, this failure is possible under arbitrage-free markets and convex risk measures. The authors provide an example demonstrating that an optimal set mapping in a finite-dimensional setting may even fail to admit continuous selections.