TITLE:
A New Class of Time-Consistent Dynamic Risk Measures and its Application
AUTHORS:
Rui Gao, Zhiping Chen
KEYWORDS:
Dynamic Risk Measure; Time-Consistent; Cash-Subadditive; Portfolio Optimization; Stochastic Programming
JOURNAL NAME:
Technology and Investment,
Vol.4 No.1B,
January
17,
2013
ABSTRACT: We construct a new time consistent dynamic convex cash-subadditive risk measure in this paper. Different from exist-ing measures, both potential loss and volatility of risky objects are considered. Based on a one-period measure that dis-torts financial values, punishes downside risk yet rewards upside potential, a dynamic time consistent version is con-structed recursively through a modified translation property. We then establish a portfolio selection model and give its optimal condition.