Liquidity, risk measures, and concentration of measure
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Publication:5219672
Abstract: Expanding on techniques of concentration of measure, we develop a quantitative framework for modeling liquidity risk using convex risk measures. The fundamental objects of study are curves of the form , where is a convex risk measure and a random variable, and we call such a curve a emph{liquidity risk profile}. The shape of a liquidity risk profile is intimately linked with the tail behavior of the underlying for some notable classes of risk measures, namely shortfall risk measures. We exploit this link to systematically bound liquidity risk profiles from above by other real functions , deriving tractable necessary and sufficient conditions for emph{concentration inequalities} of the form , for all . These concentration inequalities admit useful dual representations related to transport inequalities, and this leads to efficient uniform bounds for liquidity risk profiles for large classes of . On the other hand, some modest new mathematical results emerge from this analysis, including a new characterization of some classical transport-entropy inequalities. Lastly, the analysis is deepened by means of a surprising connection between time consistency properties of law invariant risk measures and the tensorization of concentration inequalities.
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Cited in
(25)- Transportation inequalities for stochastic heat equation with rough dependence in space
- Transportation inequalities under uniform metric for a stochastic heat equation driven by time-white and space-colored noise
- Transportation cost inequality for backward stochastic differential equations with mean reflection
- Concentration of dynamic risk measures in a Brownian filtration
- Star-shaped acceptability indexes
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