Fadina, Tolulope and Liu, Yang and Wang, Ruodu (2021) A Framework for Measures of Risk under Uncertainty. Working Paper. SSRN. (Unpublished)
Fadina, Tolulope and Liu, Yang and Wang, Ruodu (2021) A Framework for Measures of Risk under Uncertainty. Working Paper. SSRN. (Unpublished)
Fadina, Tolulope and Liu, Yang and Wang, Ruodu (2021) A Framework for Measures of Risk under Uncertainty. Working Paper. SSRN. (Unpublished)
Abstract
A risk analyst assesses potential financial losses based on multiple sources of information. Often, the assessment does not only depend on the specification of the loss random variable, but also various economic scenarios. Motivated by this observation, we design a unified axiomatic framework for risk evaluation principles which quantifies jointly a loss random variable and a set of plausible probabilities. We call such an evaluation principle a generalized risk measure. We present a series of relevant theoretical results. The worst-case, coherent, and robust generalized risk measures are characterized via different sets of intuitive axioms. We establish the equivalence between a few natural forms of law invariance in our framework, and the technical subtlety therein reveals a sharp contrast between our framework and the traditional one. Moreover, coherence and strong law invariance are derived from a combination of other conditions, which provides additional support for coherent risk measures such as Expected Shortfall over Value-at-Risk, a relevant issue for risk management practice.
Item Type: | Monograph (Working Paper) |
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Uncontrolled Keywords: | Risk management; model uncertainty; regulatory capital; variational preferences; law invariance; decision theory |
Divisions: | Faculty of Science and Health Faculty of Science and Health > Mathematical Sciences, Department of |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 02 Nov 2021 11:14 |
Last Modified: | 06 Jan 2022 14:32 |
URI: | http://repository.essex.ac.uk/id/eprint/31407 |
Available files
Filename: 2110.10792.pdf