Backward Stochastic Difference Equations for Dynamic Convex Risk Measures on a Binomial Tree
Date
2014-08-04
Journal Title
Journal ISSN
Volume Title
Publisher
Applied Probability Trust
Abstract
Using backward stochastic difference equations (BSDEs), this paper studies dynamic convex risk measures for risky positions in a simple discrete-time, binomial tree model. A relationship between BSDEs and dynamic convex risk measures is developed using nonlinear expectations. The time consistency of dynamic convex risk measures is discussed in the binomial tree framework. A relationship between prices and risks is also established. Two particular cases of dynamic convex risk measures, namely risk measures with stochastic distortions and entropic risk measures, and their mathematical properties are discussed.
Description
author can archive pre-print (ie pre-refereeing). Link to publisher's version http://ezproxy.lib.ucalgary.ca/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=110520883&site=ehost-live
Keywords
Probability Theory, Stochastic Difference Equations, Binomial Theorem, Discrete systems, non linear theories
Citation
ELLIOTT, R. J., TAK KUEN, S., & COHEN, S. N. (2015). BACKWARD STOCHASTIC DIFFERENCE EQUATIONS FOR DYNAMIC CONVEX RISK MEASURES ON A BINOMIAL TREE. Journal Of Applied Probability, 52(3), 771-785.