### Locally Constant Model Uncertainty Risk Measure

Obradovic L (2019) Center for Mathematical Economics Working Papers; 609.
Bielefeld: Center for Mathematical Economics.

Diskussionspapier | Veröffentlicht | Englisch

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Abstract / Bemerkung
This paper introduces a (coherent) risk measure that describes the uncertainty of the model (represented by a probability measure $P_0$) by a set $P_\lambda$ of probability measures each of which has a Radon-Nikodym's derivative (with respect to $P_0$) that lies within the interval $[\lambda,\frac{1}{\lambda}]$ for some constant $\lambda\in(0,1]$. Economic considerations are discussed and an explicit representation is obtained that gives a connection to both the expected loss of the financial position and its *average value-at-risk*. Optimal portfolio analysis is performed -- different optimization criteria lead to Merton portfolio. Comparison with related problems reveals examples of extreme sensitivity of optimal portfolios to model parameters and the choice of risk measure.
Stichworte
Risk measure; Model uncertainty; Value at risk; Average value at risk; Optimal portfolio; Merton portfolio.
Erscheinungsjahr
2019
Serientitel
Center for Mathematical Economics Working Papers
Band
609
ISSN
0931-6558
Page URI
https://pub.uni-bielefeld.de/record/2933748

### Zitieren

Obradovic L. Locally Constant Model Uncertainty Risk Measure. Center for Mathematical Economics Working Papers. Vol 609. Bielefeld: Center for Mathematical Economics; 2019.
Obradovic, L. (2019). Locally Constant Model Uncertainty Risk Measure (Center for Mathematical Economics Working Papers, 609). Bielefeld: Center for Mathematical Economics.
Obradovic, L. (2019). Locally Constant Model Uncertainty Risk Measure. Center for Mathematical Economics Working Papers, 609, Bielefeld: Center for Mathematical Economics.
Obradovic, L., 2019. Locally Constant Model Uncertainty Risk Measure, Center for Mathematical Economics Working Papers, no.609, Bielefeld: Center for Mathematical Economics.
L. Obradovic, Locally Constant Model Uncertainty Risk Measure, Center for Mathematical Economics Working Papers, vol. 609, Bielefeld: Center for Mathematical Economics, 2019.
Obradovic, L.: Locally Constant Model Uncertainty Risk Measure. Center for Mathematical Economics Working Papers, 609. Center for Mathematical Economics, Bielefeld (2019).
Obradovic, Lazar. Locally Constant Model Uncertainty Risk Measure. Bielefeld: Center for Mathematical Economics, 2019. Center for Mathematical Economics Working Papers. 609.
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Open Access