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Subdifferential representations of risk measures

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Abstract

Measures of risk appear in two categories: Risk capital measures serve to determine the necessary amount of risk capital in order to avoid ruin if the outcomes of an economic activity are uncertain and their negative values may be interpreted as acceptability measures (safety measures). Pure risk measures (risk deviation measures) are natural generalizations of the standard deviation. While pure risk measures are typically convex, acceptability measures are typically concave. In both cases, the convexity (concavity) implies under mild conditions the existence of subgradients (supergradients). The present paper investigates the relation between the subgradient (supergradient) representation and the properties of the corresponding risk measures. In particular, we show how monotonicity properties are reflected by the subgradient representation. Once the subgradient (supergradient) representation has been established, it is extremely easy to derive these monotonicity properties. We give a list of Examples.

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  1. Department of Statistics and Decision Support Systems, University of Vienna, Universitätsstrasse 5, 1090, Wien-Vienna, Austria

    Georg Ch. Pflug

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  1. Georg Ch. Pflug
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Correspondence to Georg Ch. Pflug.

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Pflug, G. Subdifferential representations of risk measures. Math. Program. 108, 339–354 (2006). https://doi.org/10.1007/s10107-006-0714-8

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  • DOI: https://doi.org/10.1007/s10107-006-0714-8

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