Intrinsic Risk Measures
Walter Farkas and
Alexander Smirnow
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Walter Farkas: University of Zurich, ETH Zurich and Swiss Finance Institute
Alexander Smirnow: University of Zurich and ETH Zurich
No 16-65, Swiss Finance Institute Research Paper Series from Swiss Finance Institute
Abstract:
Monetary risk measures are usually interpreted as the smallest amount of external capital that must be added to a financial position to make it acceptable. We propose a new concept: intrinsic risk measures and argue that this approach provides a direct path from unacceptable positions towards the acceptance set. Intrinsic risk measures use only internal resources and return the smallest percentage of the currently held financial position which has to be sold and reinvested into an eligible asset such that the resulting position becomes acceptable. While avoiding the problem of infinite values, intrinsic risk measures allow a free choice of the eligible asset and they preserve desired properties such as monotonicity and quasi-convexity. A dual representation on convex acceptance sets is derived and the link of intrinsic risk measures to their monetary counterparts on cones is detailed.
Keywords: intrinsic risk measures; monetary risk measures; acceptance sets; coherence; conicity; quasi-convexity; value at risk (search for similar items in EconPapers)
JEL-codes: C60 G11 G20 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2016-10
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1665
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