RISK MEASURES AND CAPITAL REQUIREMENTS FOR PROCESSES

Marco Frittelli and Giacomo Scandolo ()

Mathematical Finance, 2006, vol. 16, issue 4, 589-612

Abstract: In this paper we propose a generalization of the concepts of convex and coherent risk measures to a multiperiod setting, in which payoffs are spread over different dates. To this end, a careful examination of the axiom of translation invariance and the related concept of capital requirement in the one‐period model is performed. These two issues are then suitably extended to the multiperiod case, in a way that makes their operative financial meaning clear. A characterization in terms of expected values is derived for this class of risk measures and some examples are presented.

Date: 2006
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