Dynamic Return and Star-Shaped Risk Measures via BSDEs
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Publication:6442930
arXiv2307.03447MaRDI QIDQ6442930FDOQ6442930
Authors: Roger J. A. Laevent, Emanuela Rosazza Gianin, Marco Zullino 
Publication date: 7 July 2023
Abstract: This paper establishes characterization results for dynamic return and star-shaped risk measures induced via backward stochastic differential equations (BSDEs). We first characterize a general family of static star-shaped functionals in a locally convex Fr'echet lattice. Next, employing the Pasch-Hausdorff envelope, we build a suitable family of convex drivers of BSDEs inducing a corresponding family of dynamic convex risk measures of which the dynamic return and star-shaped risk measures emerge as the essential minimum. Furthermore, we prove that if the set of star-shaped supersolutions of a BSDE is not empty, then there exists, for each terminal condition, at least one convex BSDE with a non-empty set of supersolutions, yielding the minimal star-shaped supersolution. We illustrate our theoretical results in a few examples and demonstrate their usefulness in two applications, to capital allocation and portfolio choice.
Applications of statistics to actuarial sciences and financial mathematics (62P05) Decision theory (91B06) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Applications of stochastic analysis (to PDEs, etc.) (60H30)
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