Abstract:
We introduce the time-consistency concept that is inspired by the so-called ¿principle of optimality¿ of dynamic programming and demonstrate ¿ via an example ¿ that the conditional value-at-risk (CVaR) need not be time-consistent in a multi-stage case. Then, we give the formulation of the target-percentile risk measure which is time-consistent and hence more suitable in the multi-stage investment context. Finally, we also generalize the value-at-risk and CVaR to multi-stage risk measures based on the theory and structure of the target-percentile risk measure.
