Computational Dynamic Market Risk Measures in Discrete Time Setting

TL;DR

This paper introduces a recursive approach to defining dynamic market risk measures in discrete time, emphasizing implementation feasibility and property inheritance from static measures.

Contribution

It proposes a novel recursive framework for dynamic market risk measures based on state economy representation, bridging static measures and dynamic modeling.

Findings

The approach is implementable in practical settings.

It inherits key properties from static risk measures.

Provides a new perspective on dynamic risk assessment.

Abstract

Different approaches to defining dynamic market risk measures are available in the literature. Most are focused or derived from probability theory, economic behavior or dynamic programming. Here, we propose an approach to define and implement dynamic market risk measures based on recursion and state economy representation. The proposed approach is to be implementable and to inherit properties from static market risk measures.