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The iterated CTE: a dynamic risk measure. (English) Zbl 1085.91524

Summary: We present a method for defining a dynamic risk measure from a static risk measure, by backwards iteration. We apply the method to the conditional tail expectation (CTE) risk measure to construct a new, dynamic risk measure, the iterated CTE (ICTE). We show that the ICTE is coherent, consistent, and relevant according to the definitions of Riedel (2003), and we derive formulae for the ICTE for the case where the loss process is lognormal. Finally, we demonstrate the practical implementation of the ICTE to an equity-linked insurance contract with maturity and death benefit guarantees.

MSC:

91B30 Risk theory, insurance (MSC2010)
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