Convex Capital Requirements for Large Portfolios

in Stochastic Analysis and Applications to Finance. Essays in Honour of Jia-an Yan (2012)

For a large homogeneous portfolio of financial positions, we study the asymptotic behavior of the capital requirement per position defined in terms of a convex monetary risk measure. In an actuarial ... [more ▼]

For a large homogeneous portfolio of financial positions, we study the asymptotic behavior of the capital requirement per position defined in terms of a convex monetary risk measure. In an actuarial context, this capital requirement can be seen as a premium per contract. We show that the premia converge to the fair premium as the portfolio becomes large, and we give a precise description of the decay of the risk premia. The analysis is carried out first for a law-invariant convex risk measure and then in a situation of model ambiguity. [less ▲]