Geometrically convex return risk measures on AM-algebras

Christian Laudag\'e

Papers from arXiv.org

Abstract: Monetary risk measures quantify the risk of uncertain monetary payoffs (or losses), whereas in time series analysis risk is typically assessed using logarithmic returns. Return risk measures (RRMs) provide an axiomatic foundation for this latter approach, which relies crucially on the positive cone of the space of essentially bounded random variables. We extend RRMs to general ordered vector spaces and characterize positive homogeneity via the geometric epigraph. To investigate geometric convexity and establish connections with monetary risk measures, we specialize the domain to AM-algebras, encompassing Euclidean spaces and spaces of multidimensional essentially bounded random variables. The latter is novel in the context of RRMs and leads to the new classes of systemic and vector-valued RRMs. We establish results on finiteness, continuity, separability, as well as dual and aggregation-based representations.

Date: 2026-06
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