On the link between monetary and star-shaped risk measures

Abstract: Recently, Castagnoli et al. (2021) introduce the class of star-shaped risk measures as a generalization of convex and coherent ones, proving that there is a representation as the pointwise minimum of some family composed by convex risk measures. Concomitantly, Jia et al. (2020) prove a similar representation result for monetary risk measures, which are more general than star-shaped ones. Then, there is a question on how both classes are connected. In this letter, we provide an answer by casting light on the importance of the acceptability of 0, which is linked to the property of normalization. We then show that under mild conditions, a monetary risk measure is only a translation away from star-shapedness.

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The concept of risk measure plays a crucial role in modern risk management, with a rich axiomatic framework and important representation theorems. Important classes of risk measures are monetary, convex, coherent and star-shaped risk measures. This paper reviews the connection between these concepts, their acceptance sets and their representation theorem focusing on two recent results according to which star shaped risk measures can be represented as the pointwise minimum of a family of pointwise risk measures [\textit{E. Castagnoli} et al, ``Star-shaped risk measures, Preprint, \url{arXiv:2103.15790}] and the more general class of monetary risk measures follows a similar representation [\textit{J. Guangyan} et al., ``Monetary risk measures, Preprint, \url{arXiv:2012.06751}]. The paper considers the connection between these results, highlighting the role of acceptability of the \(0\) position and proving that translated monetary risk measures are connected with star-star shaped risk measures in the following sense: given any risk measure \(\rho\), the translated version \(\rho_{Y} : L^{\infty} \to {\mathbb R}\) defined by \(\rho_{Y}(X):=\rho(X+Y)\) for some \(Y \in L^{\infty}\), is a star-shaped risk measure if an only if, for any \(X \in L^{\infty}\), \(\rho(X) :=\min_{\lambda \in \Lambda} \rho_{\lambda}(X)\), where \(\Lambda\) is a family of convex risk measures such that \(\sup_{\lambda \in \Lambda} \rho_{\lambda}(0) < \infty\). Apart from this main result, the paper includes several other interesting properties of star-shaped risk measures in connection with convex risk measures, which are of interest in their own right and uses interesting examples for their illustration.

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