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RISK MEASURES: RATIONALITY AND DIVERSIFICATION
Author(s) -
CerreiaVioglio Simone,
Maccheroni Fabio,
Marinacci Massimo,
Montrucchio Luigi
Publication year - 2011
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2010.00450.x
Subject(s) - quasiconvex function , subadditivity , diversification (marketing strategy) , economics , econometrics , rationality , convexity , mathematical economics , equivalence (formal languages) , mathematics , regular polygon , financial economics , convex combination , pure mathematics , business , convex optimization , philosophy , geometry , epistemology , discrete mathematics , marketing
When there is uncertainty about interest rates (typically due to either illiquidity or defaultability of zero coupon bonds) the cash‐additivity assumption on risk measures becomes problematic. When this assumption is weakened, to cash‐subadditivity for example, the equivalence between convexity and the diversification principle no longer holds. In fact, this principle only implies (and it is implied by) quasiconvexity. For this reason, in this paper quasiconvex risk measures are studied. We provide a dual characterization of quasiconvex cash‐subadditive risk measures and we establish necessary and sufficient conditions for their law invariance. As a byproduct, we obtain an alternative characterization of the actuarial mean value premium principle.