Dual representations of quasiconvex compositions with applications to systemic risk

\c{C}a\u{g}{\i}n Ararat and M\"ucahit Ayg\"un

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Abstract: Motivated by the problem of finding dual representations for quasiconvex systemic risk measures in financial mathematics, we study quasiconvex compositions in an abstract infinite-dimensional setting. We calculate an explicit formula for the penalty function of the composition in terms of the penalty functions of the ingredient functions. The proof makes use of a nonstandard minimax inequality (rather than equality as in the standard case) that is available in the literature. In the second part of the paper, we apply our results in concrete probabilistic settings for systemic risk measures, in particular, in the context of Eisenberg-Noe clearing model. We also provide novel economic interpretations of the dual representations in these settings.

Date: 2021-08
New Economics Papers: this item is included in nep-isf and nep-rmg
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