- Working Paper
The theory of acceptance sets and their associated risk measures plays a key role in the design of capital adequacy tests. The objective of this paper is to investigate, in the context of bounded financial positions, the class of surplus-invariant acceptance sets. These are characterized by the fact that acceptability does not depend on the positive part, or surplus, of a capital position. We argue that surplus invariance is a reasonable requirement from a regulatory perspective, because it focuses on the interests of liability holders of a financial institution. We provide a dual characterization of surplusinvariant, convex acceptance sets, and show that the combination of surplus invariance and coherence leads to a narrow range of capital adequacy tests, essentially limited to scenario-based tests. Finally, we emphasize the advantages of dealing with surplus-invariant acceptance sets as the primary object rather than directly with risk measures, such as loss-based and excess-invariant risk measures, which have been recently studied by Cont, Deguest & He in  and by Staum in , respectively Show more
Journal / seriesArXiv
SubjectSurplus invariance; Limited liability; Capital adequacy; Risk measures; Loss-based risk measures; Shortfall risk measures; Excess invariance
Organisational unit03658 - Schweizer, Martin
NotesSee also: http://e-citations.ethbib.ethz.ch/view/pub:147911.
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