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Review of Network Economics Vol.8, Issue 2 – June 2009 153 Time Consistency in Regulatory Price Setting: An Australian Case Study HENRY ERGAS * Concept Economics Abstract Time consistency refers to situations where a policy that is optimal ex ante proves not to be optimal ex post, creating the risk of opportunistic policy reversals. While the threat of such reversals has received widespread attention in the theoretical literature, testing whether policy is

Abstract

In this paper we study time-consistent risk measures for returns that are given by a GARCH(1,1) model. We present a construction of risk measures based on their static counterparts that overcomes the lack of time-consistency. We then study in detail our construction for the risk measures Value-at-Risk (VaR) and Average Value-at-Risk (AVaR). While in the VaR case we can derive an analytical formula for its time-consistent counterpart, in the AVaR case we derive lower and upper bounds to its time-consistent version. Furthermore, we incorporate techniques from extreme value theory (EVT) to allow for a more tail-geared statistical analysis of the corresponding risk measures. We conclude with an application of our results to a data set of stock prices.

Statistics & Risk Modeling 29, 133–153 (2012) / DOI 10.1524/strm.2012.1115 c Oldenbourg Wissenschaftsverlag, München 2012 Time consistency of multi-period distortion measures Vicky Fasen, Adela Svejda Received: June 20, 2011; Accepted: March 5, 2012 Summary: Dynamic risk measures play an important role for the acceptance or non-acceptance of risks in a bank portfolio. Dynamic consistency and weaker versions like conditional and sequential consistency guarantee that acceptability decisions remain consistent in time. An important set of static risk measures are so

C H A P T E R F O U R The Time-Consistency Problem Like the British Constitution, she owes her success in practice to her inconsistencies in principle. Thomas Hardy, The Hand of Ethelberta With consistency a great soul has simply nothing to do. Ralph Waldo Emerson, Self-Reliance 4.1. INTRODUCTION In this chapter, we consider the time-consistency problem; in the two subsequent chapters, we consider various ‘‘solutions.’’ Time consistency has become an integral part of explanations of many economic phenom- ena, in large part because of insights it gives into these

Radon Series Comp. Appl. Math 8, 347–369 c© de Gruyter 2009 Time consistency and information monotonicity of multiperiod acceptability functionals Raimund Kovacevic and Georg Ch. Pflug Abstract. Time consistency is an often required property of functionals which measure the risk or the acceptability of financial processes. Based on elementary consistency properties for pairs of conditional acceptability mappings, we demonstrate how these properties translate into the multi- period setting. Moreover, we show that even in elementary cases time consistency may

Statistics & Risk Modeling 30, 255–280 (2013) / DOI 10.1524/strm.2013.1131 c Oldenbourg Wissenschaftsverlag, München 2013 Membership conditions for consistent families of monetary valuations Berend Roorda, Johannes M. Schumacher Received: May 7, 2012; Accepted: June 20, 2013 Summary: We investigate time consistency of monetary valuations, also called monetary risk measures or monetary utility functions. Through a number of recent research contributions, it has become clear that time consistency imposes strong constraints on families of monetary valuations

, D. (2016). Conditional nonlinear expectations. Available at https://arxiv.org/abs/1612.09103v2. [6] Bellini, F., V. Bignozzi, and G. Puccetti (2018). Conditional expectiles, time consistency and mixture convexity properties. Insurance Math. Econom. 82, 117-123. [7] Ben-Tal, A. and M. Teboulle (1986). Expected utility, penalty functions, and duality in stochastic nonlinear programming. Manage. Sci. 32(11), 1445-1466. [8] Ben-Tal, A. and M. Teboulle (2007). An old-new concept of convex risk measures: The optimized certainty equivalent. Math. Finance 17(3), 449

phenomena, including the underutilization of tax-advanced inter vivos gifts and inadequate purchase of life insurance. KEYWORDS: time consistency, behavioral economics ∗Slemrod: University of Michigan A2120D Business School 701 Tappan Street Ann Arbor, MI 48109 Kopczuk: Columbia University 420 West 118th Street, Rm. 1022 IAB MC 3323 New York, NY 10027 Death. William James called it the “worm at the core of all our usual springs of delight.” Life must end for all living beings, but only humans may grasp its existential meaning. Many, though, recoil. “One cannot look

, in any steady state the government has either no incentive or no ability to reduce the real interest rate any longer. KEYWORDS: time-consistency, markov perfect equilibrium ∗I would like to thank Stefania Albanesi, Marco Bassetto, Chuck Carlstrom, Roberto Chang, Jose- Victor Rios-Rull, Stephanie Schmitt-Grohe, David Stockman, Martin Uribe, two anonymous ref- erees, and seminar participants at Duke University, the University of Delaware and Meetings of the Society for Economic Dynamics for helpful discussions and suggestions. All errors are mine. The views expressed

-hedging prices of a contingent claim are recursively defined in the spirit of [ 18 ]. Based on the concept of immediate profit, introduced in [ 18 ], we establish a weak version of FTAP to equivalently characterise the condition of absence of immediate profit (AIP). Moreover, we show that for bounded non-negative contingent claims, the minimal super-hedging price may be computed through a conditional (dynamic) coherent risk measure derived from the underlying risk measure. At last, we discuss the time consistency, i.e. coherent evaluations of risk in time, since it is a very