Approaches to Conditional Risk
36 Pages Posted: 1 Feb 2011 Last revised: 16 Feb 2012
Date Written: January 13, 2011
We present and compare two different approaches to conditional risk measures. One approach draws from convex analysis in vector spaces and presents risk measures as functions on Lp spaces, while the other approach utilizes module-based convex analysis where conditional risk measures are defined on Lp type modules. Both approaches utilize general duality theory for vector valued convex functions in contrast to the current literature in which we find ad hoc dual representations. By presenting several applications such as monotone and (sub)cash invariant hulls with corresponding examples we illustrate that module-based convex analysis is well suited to the concept of conditional risk measures.
Keywords: Conditional risk measures, L0-modules, Lp type modules, Monotone hulls, Subcash invariant hulls, Cash invariant hulls
JEL Classification: C60
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