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Time consistency and moving horizons for risk measures

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  • Samuel N. Cohen
  • Robert J. Elliott
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    Abstract

    We consider portfolio selection when decisions based on a dynamic risk measure are affected by the use of a moving horizon, and the possible inconsistencies that this creates. By giving a formal treatment of time consistency which is independent of Bellman's equations, we show that there is a new sense in which these decisions can be seen as consistent.

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    File URL: http://arxiv.org/pdf/0912.1396
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 0912.1396.

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    Date of creation: Dec 2009
    Date of revision: Jul 2010
    Handle: RePEc:arx:papers:0912.1396

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    Web page: http://arxiv.org/

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    1. Hu, Ying & Ma, Jin & Peng, Shige & Yao, Song, 2008. "Representation theorems for quadratic -consistent nonlinear expectations," Stochastic Processes and their Applications, Elsevier, vol. 118(9), pages 1518-1551, September.
    2. Susanne Klöppel & Martin Schweizer, 2007. "Dynamic Indifference Valuation Via Convex Risk Measures," Mathematical Finance, Wiley Blackwell, vol. 17(4), pages 599-627.
    3. Peleg, Bezalel & Yaari, Menahem E, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 391-401, July.
    4. Kang Boda & Jerzy Filar, 2006. "Time Consistent Dynamic Risk Measures," Computational Statistics, Springer, vol. 63(1), pages 169-186, February.
    5. Goldman, Steven M, 1980. "Consistent Plans," Review of Economic Studies, Wiley Blackwell, vol. 47(3), pages 533-37, April.
    6. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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