Beyond cash-additive risk measures: when changing the numéraire fails

DOI10.1007/S00780-013-0220-9zbMATH Open1308.91079arXiv1206.0478OpenAlexW3123231268MaRDI QIDQ471176FDOQ471176

Authors: Walter Farkas, Pablo Koch-Medina, Cosimo Munari 

Publication date: 14 November 2014

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on cash-additive risk measures, for which the eligible asset is a risk-free bond, on the grounds that the general case can be reduced to the cash-additive case by a change of numeraire. However, discounting does not work in all financially relevant situations, typically when the eligible asset is a defaultable bond. In this paper we fill this gap allowing for general eligible assets. We provide a variety of finiteness and continuity results for the corresponding risk measures and apply them to risk measures based on Value-at-Risk and Tail Value-at-Risk on $L^p$ spaces, as well as to shortfall risk measures on Orlicz spaces. We pay special attention to the property of cash subadditivity, which has been recently proposed as an alternative to cash additivity to deal with defaultable bonds. For important examples, we provide characterizations of cash subadditivity and show that, when the eligible asset is a defaultable bond, cash subadditivity is the exception rather than the rule. Finally, we consider the situation where the eligible asset is not liquidly traded and the pricing rule is no longer linear. We establish when the resulting risk measures are quasiconvex and show that cash subadditivity is only compatible with continuous pricing rules.

Full work available at URL: https://arxiv.org/abs/1206.0478

Recommendations

• The dynamics of risk beyond convexity
• OPTIMAL NUMERAIRES FOR RISK MEASURES
• Excess invariance and shortfall risk measures
• SET-VALUED CASH SUB-ADDITIVE RISK MEASURES
• A class of non-expected utility risk measures and implications for asset allocations
• A note on changes in additive risky benefits and risky costs
• Comparing utility derivative premia under additive and multiplicative risks
• scientific article; zbMATH DE number 952987
• Cash subadditive risk measures and interest rate ambiguity

zbMATH Keywords

risk measuresvalue-at-riskquasiconvexitycash subadditivityacceptance setsdefaultable bondsgeneral eligible assetsshortfall risktail value-at-risk

Mathematics Subject Classification ID

Ordered topological structures (06F30)

Cites Work

• Coherent measures of risk
• Title not available (Why is that?)
• Infinite dimensional analysis. A hitchhiker's guide.
• Stochastic finance. An introduction in discrete time
• Lectures on Stochastic Programming
• Cones and duality
• RISK MEASURES: RATIONALITY AND DIVERSIFICATION
• Cash subadditive risk measures and interest rate ambiguity
• Risk preferences and their robust representation
• Set-valued risk measures for conical market models
• RISK MEASURES ON ORLICZ HEARTS
• Title not available (Why is that?)
• Comparative and qualitative robustness for law-invariant risk measures
• Stopping Times and Directed Processes
• A unified framework for utility maximization problems: An Orlicz space approach
• On convex risk measures on \(L^{p}\)-spaces
• RISK MEASURES AND CAPITAL REQUIREMENTS FOR PROCESSES
• Lebesgue property for convex risk measures on Orlicz spaces
• Coherent risk measures and good-deal bounds
• Risk Measures and Efficient use of Capital
• Risk measures in ordered normed linear spaces with non-empty cone-interior
• Good deal bounds induced by shortfall risk
• AN AXIOMATIZATION OF QUANTILES ON THE DOMAIN OF DISTRIBUTION FUNCTIONS
• On the extension of the Namioka-Klee theorem and on the Fatou property for risk measures
• Convex risk measures beyond bounded risks
• Automatic Continuity and Openness of Convex Relations
• Capital requirements with defaultable securities
• Monotone and cash-invariant convex functions and hulls

Cited In (24)

• Risk measures beyond frictionless markets
• Measuring risk with multiple eligible assets
• A comparison of techniques for dynamic multivariate risk measures
• Fatou property, representations, and extensions of law-invariant risk measures on general Orlicz spaces
• Portfolio optimization with quasiconvex risk measures
• Comparative and qualitative robustness for law-invariant risk measures
• Multi-utility representations of incomplete preferences induced by set-valued risk measures
• Risk sharing for capital requirements with multidimensional security markets
• Cash subadditive risk measures and interest rate ambiguity
• Law-invariant functionals that collapse to the mean
• Star-Shaped Risk Measures
• Automatic Fatou property of law-invariant risk measures
• Multivariate dynamic cash sub-additive risk measures for processes
• Stability properties of Haezendonck-Goovaerts premium principles
• A Boolean valued analysis approach to conditional risk
• Capital requirements with defaultable securities
• Combining multi-asset and intrinsic risk measures
• Model spaces for risk measures
• Minkowski deviation measures
• Capital allocation rules and acceptance sets
• A continuous selection for optimal portfolios under convex risk measures does not always exist
• Diversification, protection of liability holders and regulatory arbitrage
• Qualitative robustness of utility-based risk measures
• OPTIMAL NUMERAIRES FOR RISK MEASURES

This page was built for publication: Beyond cash-additive risk measures: when changing the numéraire fails

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q471176)