Time Consistent Dynamic Risk Measures |
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Authors: | Kang Boda Jerzy A Filar |
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Institution: | (1) Center for Industrial and Applied Mathematics, School of Mathematics & Statistics, University of South Australia, Mawson Lakes, SA, 5095, Australia |
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Abstract: | We introduce the time-consistency concept that is inspired by the so-called “principle of optimality” of dynamic programming
and demonstrate – via an example – that the conditional value-at-risk (CVaR) need not be time-consistent in a multi-stage
case. Then, we give the formulation of the target-percentile risk measure which is time-consistent and hence more suitable
in the multi-stage investment context. Finally, we also generalize the value-at-risk and CVaR to multi-stage risk measures
based on the theory and structure of the target-percentile risk measure. |
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Keywords: | Time consistency Multi-stage Target-percentile Value-at-risk Conditional value-at-risk Markov decision process |
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