SD Jacka and AK Berkaoui
On Representing Claims for Coherent Risk Measures
Abstract: We consider the problem of representing claims for coherent risk measures. For this purpose we introduce the concept of (weak and strong) time-consistency with respect to a portfolio of assets, generalizing the one defined in Delbaen . In a similar way we extend the notion of m-stability, by introducing weak and strong versions. We then prove that the two concepts of m- stability and time-consistency are still equivalent, thus giving necessary and sufficient conditions for a coherent risk measure to be represented by a market with proportional transaction costs. We go on to deduce that, under a separability assumption, any coherent risk measure is strongly time-consistent with respect to a suitably chosen countable portfolio, and show the converse: that any market with proportional transaction costs is equivalent to a market priced by a coherent risk measure, essentially establishing the equivalence of the two concepts.