Time consistent dynamic risk measures
- Publication Type:
- Journal Article
- Mathematical Methods of Operations Research, 2006, 63 (1), pp. 169 - 186
- Issue Date:
We introduce the time-consistency concept that is inspired by the so-called principle of optimality of dynamic programming and demonstrate via an example that the conditional value-at-risk (CVaR) need not be time-consistent in a multi-stage case. Then, we give the formulation of the target-percentile risk measure which is time-consistent and hence more suitable in the multi-stage investment context. Finally, we also generalize the value-at-risk and CVaR to multi-stage risk measures based on the theory and structure of the target-percentile risk measure.
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