Time consistent dynamic risk processes

ul 2 00 6 Time Consistent Dynamic Risk Processes

Working in a continuous time setting, we extend to the general case of dynamic risk measures continuous from above the characterization of time consistency in terms of " cocycle condition " of the minimal penalty function. We prove also the supermartingale property for general time consistent dynamic risk measures. When the time consistent dynamic risk measure (continuous from above) is normali...

Time Consistent Dynamic Risk Measures

Dynamic Monetary Risk Measures for Bounded Discrete-Time Processes

We study time-consistency questions for processes of monetary risk measures that depend on bounded discrete-time processes describing the evolution of financial values. The time horizon can be finite or infinite. We call a process of monetary risk measures time-consistent if it assigns to a process of financial values the same risk irrespective of whether it is calculated directly or in two ste...

Composition of Time-Consistent Dynamic Monetary Risk Measures in Discrete Time

In discrete time, every time-consistent dynamic monetary risk measure can be written as a composition of one-step risk measures. We exploit this structure to give new dual representation results for time-consistent convex monetary risk measures in terms of one-step penalty functions. We first study risk measures for random variables modelling financial positions at a fixed future time. Then we ...

Dynamic Cointegrated Pairs Trading: Time-Consistent Mean-Variance Strategies

Cointegration is a useful econometric tool for identifying assets which share a common equilibrium. Cointegrated pairs trading is a trading strategy which attempts to take a profit when cointegrated assets depart from their equilibrium. This paper investigates the optimal dynamic trading of cointegrated assets using the classical mean-variance portfolio selection criterion. To ensure rational e...