Intrinsic Risk Measures

Monetary risk measures classify a financial position by the minimal amount of external capital that must be added to make it acceptable. We propose a new concept: intrinsic risk measures. An intrinsic risk measure is defined... [ view full abstract ]

Monetary risk measures classify a financial position by the minimal amount of external capital that must be added to make it acceptable.
We propose a new concept: intrinsic risk measures. An intrinsic risk measure is defined by the smallest percentage of the currently held financial position which has to be sold and reinvested in an eligible asset such that the resulting position becomes acceptable.
We show that this approach provides a more direct path from unacceptable positions towards the acceptance set. We derive representations on conic and convex acceptance sets and we detail the connections to their monetary counterparts.