Concave risk measures in international capital regulation
Imre Kondor, Andras Szepessy, and Tunde Ujvarosi
TL;DR
This paper examines how certain market risk measures mandated by international regulations like Basel and EU directives violate convexity, raising concerns about their mathematical consistency in portfolio risk assessment.
Contribution
It identifies specific violations of convexity in risk measures used in international capital regulation, highlighting a key mathematical inconsistency.
Findings
Certain risk measures violate convexity in some portfolio regions
Implications for the mathematical soundness of current regulations
Potential need for revised risk measure formulations
Abstract
We show that some specific market risk measures implied by current international capital regulation (the Basel Accords and the Capital Adequacy Directive of the European Union) violate the obvious requirement of convexity in some regions in the space of portfolio weights.
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Taxonomy
TopicsRisk and Portfolio Optimization · Credit Risk and Financial Regulations · Stochastic processes and financial applications