Time Consistent Dynamic Risk Measures

Kang Boda and Jerzy Filar ()

Mathematical Methods of Operations Research, 2006, vol. 63, issue 1, 169-186

Abstract: We introduce the time-consistency concept that is inspired by the so-called “principle of optimality” of dynamic programming and demonstrate – via an example – that the conditional value-at-risk (CVaR) need not be time-consistent in a multi-stage case. Then, we give the formulation of the target-percentile risk measure which is time-consistent and hence more suitable in the multi-stage investment context. Finally, we also generalize the value-at-risk and CVaR to multi-stage risk measures based on the theory and structure of the target-percentile risk measure. Copyright Springer-Verlag 2006

Keywords: Time consistency; Multi-stage; Target-percentile; Value-at-risk; Conditional value-at-risk; Markov decision process (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:mathme:v:63:y:2006:i:1:p:169-186

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DOI: 10.1007/s00186-005-0045-1

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