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Abstract We derive a representation for dynamic capital allocation when the underlying asset price process includes extreme random price movements. Moreover, we consider the representation of dynamic risk measures defined… Click to show full abstract
Abstract We derive a representation for dynamic capital allocation when the underlying asset price process includes extreme random price movements. Moreover, we consider the representation of dynamic risk measures defined under Backward Stochastic Differential Equations (BSDE) with generators that grow quadratic-exponentially in the control variables. Dynamic capital allocation is derived from the differentiability of BSDEs with jumps. The results are illustrated by deriving a capital allocation representation for dynamic entropic risk measure and static coherent risk measure.
Journal Title: Communications in Statistics - Theory and Methods
Year Published: 2020
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