Weakly time consistent concave valuations and their dual representations (Q261920)

Let \((\Omega,\mathcal F,\mathcal F_{t\in\mathcal T},\mathbb P)\) be a filtered probability space with discrete or continuous time axis \(\mathcal T\). Let the set \(L^\infty=L^\infty(\Omega,\mathcal F,\mathbb P)\) be the universe of all possible financial positions and let \(L_t^\infty=L^\infty(\Omega,\mathcal F_{t\in\mathcal T}, \mathbb P)\) be the positions that are determinate at time \(t\). The mapping \(\phi_t:L^\infty\rightarrow L^\infty_t\) is called the concave valuation if it has the following five properties with \(X,Y,X_n\in L^\infty\) and \(C, \Lambda \in L^\infty_t\), \(0\leq\Lambda\leq 1\): {\parindent8mm \begin{itemize}\item[(i)] \(\phi_t(0)=0\); \item[(ii)] \(X\leq Y\)\quad \(\Rightarrow\)\quad \(\phi_t(X)\leq \phi_t(Y)\); \item[(iii)] \(\phi_t(X+C)=\phi_t(X)+C\); \item[(iv)] \(\phi_t(\Lambda X+(1-\Lambda)Y)\geq \Lambda\phi_t(X)+(1-\Lambda)\phi_t(Y)\); \item[(v)] \(X_n\downarrow X\)\quad \(\Rightarrow\)\quad \(\phi_t(X_n)\downarrow \phi_t(X)\). \end{itemize}} Two concave valuations \(\phi_t\) and \(\phi_s\) (\(s\leq t\)) are called conditionally consistent if the following requirement holds: \[ \{X\in L^\infty\mid\phi_t(X)\geq 0\}=\{X\in L^\infty\mid \phi_s(X\mathbb{I}_F)\geq 0\text{ for all }F\in \mathcal F_t\}. \] Similarly, two monetary concave valuations \(\phi_t\) and \(\phi_s\) (\(s\leq t\)) are called sequentially consistent if the following implication holds: \[ \phi_t(X)=0\quad \Rightarrow\quad \phi_s(X)=0. \] The authors of the paper give various characterizations of conditional and sequential consistency of concave valuations. For instance, under the assumption of consistent risk aversion, they characterize sequential consistency by three straightforward rules for threshold functions. Using the obtained results, the authors describe classes of consistently risk averse dynamic valuations with prescribed static properties per time step.