Dynamic Coherent Acceptability Indices and their Applications to Finance

Details Dynamic Coherent Acceptability Indices and their Applications to Finance Dynamic Coherent Acceptability Indices and their Applications to Finance

2010-10-20

arxiv.org/abs/1010.4339v2

Economy

Quantitative Finance

Risk Management

Scientific paper

In this paper we present a theoretical framework for studying coherent acceptability indices in a dynamic setup. We study dynamic coherent acceptability indices and dynamic coherent risk measures, and we establish a duality between them. We derive a representation theorem for dynamic coherent risk measures in terms of so called dynamically consistent sequence of sets of probability measures. Based on these results, we give a specific construction of dynamic coherent acceptability indices. We also provide examples of dynamic coherent acceptability indices, both abstract and also some that generalize selected classical financial measures of portfolio performance.

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