Risk assessment for uncertain cash flows: model ambiguity, discounting ambiguity, and the role of bubbles

DOI10.1007/S00780-012-0176-1zbMATH Open1262.91091arXiv1002.3627OpenAlexW2157933738MaRDI QIDQ693031FDOQ693031

Authors: B. Acciaio, Hans Föllmer, Irina Penner 

Publication date: 7 December 2012

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

Abstract: We study the risk assessment of uncertain cash flows in terms of dynamic convex risk measures for processes as introduced in Cheridito, Delbaen, and Kupper (2006). These risk measures take into account not only the amounts but also the timing of a cash flow. We discuss their robust representation in terms of suitably penalized probability measures on the optional sigma-field. This yields an explicit analysis both of model and discounting ambiguity. We focus on supermartingale criteria for different notions of time consistency. In particular we show how bubbles may appear in the dynamic penalization, and how they cause a breakdown of asymptotic safety of the risk assessment procedure.

Full work available at URL: https://arxiv.org/abs/1002.3627

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zbMATH Keywords

model ambiguitytime consistencyasymptotic safetybubblesrobust representationcash subadditivitydiscounting ambiguitydynamic convex risk measurescash flowsdynamic penalisation

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Utility theory (91B16)

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