Dynamic Coherent Risk Measures

16 Pages Posted: 24 Mar 2003

See all articles by Frank Riedel

Frank Riedel

Bielefeld University - Center for Mathematical Economics

Date Written: January 10, 2003

Abstract

In this paper, a notion of risk measure is defined for dynamic models. Three axioms, coherence, relevance and dynamic consistence, are postulated. It is shown that every dynamic risk measure that satisfies the axioms can be represented as the maximal expected present value of future losses where expectations are taken with respect to a set of probability measures. As new information arrives, this set of probability measures is updated in the Bayesian way. Moreover, dynamic consistency implies that this set satisfies a certain consistency condition.

Keywords: Risk Measures, Consistency, Coherence, Dynamic Models

JEL Classification: G1, D9

Suggested Citation

Riedel, Frank, Dynamic Coherent Risk Measures (January 10, 2003). Available at SSRN: https://ssrn.com/abstract=368620 or http://dx.doi.org/10.2139/ssrn.368620

Frank Riedel (Contact Author)

Bielefeld University - Center for Mathematical Economics ( email )

Postfach 10 01 31
Bielefeld, D-33501
Germany

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