An Ergodic BSDE Approach to Forward Entropic Risk Measures: Representation and Large-Maturity Behavior

34 Pages Posted: 2 Dec 2016 Last revised: 28 Jan 2021

See all articles by Wing Fung Chong

Wing Fung Chong

Heriot-Watt University - Department of Actuarial Mathematics and Statistics

Ying Hu

Université de Rennes 1

Gechun Liang

University of Warwick - Department of Statistics

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business

Date Written: April 11, 2017

Abstract

Using elements from the theory of ergodic backward stochastic differential equations (BSDE), we study the behavior of forward entropic risk measures. We provide their general representation results (via both BSDE and convex duality) and examine their behavior for risk positions of long maturities. We show that forward entropic risk measures converge to some constant exponentially fast. We also compare them with their classical counterparts and derive a parity result.

Suggested Citation

Chong, Wing Fung and Hu, Ying and Liang, Gechun and Zariphopoulou, Thaleia, An Ergodic BSDE Approach to Forward Entropic Risk Measures: Representation and Large-Maturity Behavior (April 11, 2017). Available at SSRN: https://ssrn.com/abstract=2878882 or http://dx.doi.org/10.2139/ssrn.2878882

Wing Fung Chong (Contact Author)

Heriot-Watt University - Department of Actuarial Mathematics and Statistics ( email )

Edinburgh, Scotland EH14 4AS
United Kingdom

Ying Hu

Université de Rennes 1 ( email )

11 Rue Jean Macé
Rennes, Rennes 35042
France

Gechun Liang

University of Warwick - Department of Statistics ( email )

Coventry CV4 7AL
United Kingdom

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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