Star-shaped acceptability indexes

TL;DR

This paper introduces star-shaped acceptability indexes, generalizing existing models by linking them to star-shaped risk measures and acceptance sets, with practical examples related to risk and reward metrics.

Contribution

It develops a new framework for acceptability indexes based on star-shaped risk measures, extending previous models and providing concrete examples linked to common financial risk metrics.

Findings

Characterization of acceptability indexes via star-shaped risk measures

Introduction of concrete examples including VaR and reward-based ratios

Establishment of a unified framework generalizing prior models

Abstract

We propose the star-shaped acceptability indexes as generalizations of both the approaches of Cherny and Madan (2009) and Rosazza Gianin and Sgarra (2013) in the same vein as star-shaped risk measures generalize both the classes of coherent and convex risk measures in Castagnoli et al. (2022). We characterize acceptability indexes through star-shaped risk measures, star-shaped acceptance sets, and as the minimum of a family of quasi-concave acceptability indexes. Further, we introduce concrete examples under our approach linked to Value at Risk, risk-adjusted reward on capital, reward-based gain-loss ratio, monotone reward-deviation ratio, and robust acceptability indexes.