Monetary risk measures for stochastic processes via Orlicz duality

Christos E. Kountzakis () and Damiano Rossello ()
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Christos E. Kountzakis: University of the Aegean
Damiano Rossello: University of Catania

Decisions in Economics and Finance, 2022, vol. 45, issue 1, No 2, 35-56

Abstract: Abstract In this article, we extend the framework of monetary risk measures for stochastic processes to account for heavy tailed distributions of random cash flows evolving over a fixed trading horizon. To this end, we transfer the $$L^p$$ L p -duality underlying the representation of monetary risk measures to a more flexible Orlicz duality, in spaces of stochastic processes modelling random future evolution of financial values in continuous time over a finite horizon. This contributes, on the one hand, to the theory of real-valued monetary risk measures for processes and, on the other hand, supports a new representation of acceptability indices of financial performance.

Keywords: Concave monetary utility functionals; Monetary risk measures for processes; Orlicz space duality; Acceptability indices (search for similar items in EconPapers)
JEL-codes: C02 C44 G11 G20 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10203-021-00334-x

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