Example of a risk measure that is not law-invariant

examples-counterexamplesinvariancemeasure-theoryprobability theoryrisk-assessment

In some theorems about risk measures, the property of law invariance is required. Let $\mathcal{Z} = \mathcal{L}(\Omega, \mathcal{F}, P)$. A risk measure $\rho\colon \mathcal{Z}\to \mathbb{R}$ is law invariant if and only if $\rho[Z_1] = \rho[Z_2]$ whenever $Z_1$ and $Z_2$ have the same distribution.

All risk measures I have encountered so far, such as the expectation and the average value-at-risk, seem to have this property. Can someone give an example of a risk mesure for which this is not the case?

Best Answer

Let $\omega \in \Omega$, define a risk measure $\rho$ like:

$$ \rho(Z) = Z(\omega) $$

$Z \in \mathcal{Z}=\mathcal{L}(\Omega, \mathcal{F}, P)$ is a random variable. The risk measure $\rho$ is well-defined in this way.

Let $Z_1 \sim \mathcal{N}(0, 1), Z_2=-Z_1$, we know that $Z_1$ and $Z_2$ has the same distribution but generally $\rho(Z_1)\neq \rho(Z_2)$.

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