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Monetary risk measures for stochastic processes via Orlicz duality

Author

Listed:
  • Christos E. Kountzakis

    (University of the Aegean)

  • Damiano Rossello

    (University of Catania)

Abstract

In this article, we extend the framework of monetary risk measures for stochastic processes to account for heavy tailed distributions of random cash flows evolving over a fixed trading horizon. To this end, we transfer the $$L^p$$ L p -duality underlying the representation of monetary risk measures to a more flexible Orlicz duality, in spaces of stochastic processes modelling random future evolution of financial values in continuous time over a finite horizon. This contributes, on the one hand, to the theory of real-valued monetary risk measures for processes and, on the other hand, supports a new representation of acceptability indices of financial performance.

Suggested Citation

  • Christos E. Kountzakis & Damiano Rossello, 2022. "Monetary risk measures for stochastic processes via Orlicz duality," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 35-56, June.
    • Handle: RePEc:spr:decfin:v:45:y:2022:i:1:d:10.1007_s10203-021-00334-x
    DOI: 10.1007/s10203-021-00334-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Concave monetary utility functionals; Monetary risk measures for processes; Orlicz space duality; Acceptability indices;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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