Statistics and Probability Letters

A note on the induction of comonotonic additive risk measures from acceptance sets
--Manuscript Draft--

Manuscript Number: STAPRO-D-23-00483R1

Article Type: Letter

Keywords: Acceptance sets; Comonotonicity; Risk measures; Deviation measures;

Comonotonic additive risk measures.

Corresponding Author: Samuel Solgon Solgon Santos, Ph.D.

University of Waterloo
Waterloo, Ontario CANADA

First Author: Samuel Solgon Solgon Santos, Ph.D.

Order of Authors: Samuel Solgon Solgon Santos, Ph.D.

Marlon R. Moresco, Ph.D

Marcelo B. Righi, Ph.D

Eduardo de Oliveira Horta, Ph.D

Abstract: We demonstrate that an acceptance set generates a comonotonic additive risk

measure if and only if the acceptance set and its complement are closed for convex
combinations of comonotonic random variables. Furthermore, this equivalence extends
to deviation measures.

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Detailed Response to Reviewers

Statistics and Probability Letters

Manuscript Number STAPRO-D-23-00483

Reply to Associate Editor’s and Reviewers’ recommendations

on the Manuscript “A note on the induction of comonotonic
additive risk measures from acceptance sets”

Samuel S. Santos, Marlon R. Moresco, Marcelo B. Righi, Eduardo de O. Horta.

We want to thank the Editor, Associate Editor, and Reviewers for their valuable feedback
and constructive recommendations. Their input has significantly enhanced the quality of the
manuscript. We have carefully considered and addressed all points raised by the Associate
Editor and Reviewers, and we present our detailed responses below.

1
Response to the Editor
Dear Associate Editor,
We appreciate your thoughtful review of our manuscript. Your suggestions have
significantly influenced the development of this revised version. Throughout the re-
view process of the paper, we prioritized ensuring accessibility for risk managers who
may not have a deep knowledge of the concepts used in our study. To accomplish
this objective, we have incorporated new paragraphs that elucidate the financial sig-
nificance of key concepts and results. Notice that to accommodate these additional
paragraphs we allocated all the proofs and auxiliary lemmas in an Appendix, which
we submitted as Supplemental Materials for online publication only.
In the following, we outline the specific modifications implemented to enhance
the comprehensibility of our study for risk managers who may not be well-versed in
the axiomatic study of risk measures.
a) We have restructured the Introduction, making it self-contained, and discussing
the financial meaning behind the key concepts we utilize, namely acceptance
sets, risk measures, deviation measures, and comonotonic random variables.

b) Immediately after the definition of comonotonic random variables (Definition

1, pg. 3), we added the following sentence:
The distinctive feature of comonotonic random variables is that they do not
hedge each other. In addition, X, Y are comonotonic if and only if FX,Y (x, y) =
min{FX (x), FY (y)}, for all (x, y) ∈ R2 . For further details and other charac-
terizations of comonotonic random variables, see Theorem 2.14 of Rüschendorf
(2013) and Theorem 4 of Dhaene et al. (2020).
c) After introducing the properties of acceptance sets (Definition 1, pg. 4), we
describe their financial meaning in the following explanation:
The property of monotonicity is a basic requirement for acceptance sets: if
the regulator accepts X while Y pays more than X with probability one, then
Y should also be acceptable. The property of normalization captures the idea
that holding no financial asset (and therefore incurring no risk of loss) is ac-
ceptable. The property of convexity (concavity, respectively) corresponds to the
requirement that diversification does not increase (decrease, respectively) the
risk. Accordingly, the property of comonotonic convexity for acceptance sets
represents the notion that diversification among comonotonic random variables
does not cause harm to the portfolio (comonotonic convex acceptance sets were
studied in Kou et al. (2013) and Jia et al. (2020)).
d) After defining the main properties for risk measures (as per Definition 2, pg.4),
we clarified their financial meaning in the next paragraph.
The meaning of these axioms is analogous to their counterparts for acceptance
sets. For example, the above axiom of monotonicity requires that if the payout
of a financial position X is always smaller than that of Y , then the risk of
X—and therefore its regulatory capital—must be greater than that of Y . The
translation invariance axiom says that if the future (unknown) result X is de-
pleted by a known amount m ∈ R, becoming X − m, then the same amount
must be added to the original regulatory capital to maintain the same level of
risk. The axiom of convexity (concavity, respectively) aims to capture the pos-
sibility that diversification may be beneficial (may cause harm, respectively).
Additivity, as a combination of convexity and concavity, captures the notion

2
 that diversification brings no harm and no benefits. In what comonotonic ran-
dom variables are regarded, the lack of hedging among them implies that one
cannot benefit from pooling them together, but, on the other hand, there is also
no harm in doing so. For risk (and deviation) measures, this translates into
“the risk of the sum should be the sum of the risks”, which then provides the
intuitive basis for the axiom of comonotonic additivity.
e) Right after the previous paragraph, we introduced examples of comonotonic
additive risk measures—specifically, the value at risk and the average value
at risk, both of which hold significant importance in regulatory frameworks
(please, see pg. 5).
The widely used value-at-risk (VaR) and average value-at-risk (AVaR) are de-
fined, for all X ∈ X and some significance level p ∈ R(0, 1), as VaRp (X) =
p
inf{x ∈ R : F−X (x) ⩾ 1 − p} and AVaRp (X) = p1 0 VaRq (X) dq. Both
VaR and AVaR are used in the Basel III / IV banking regulatory framework.
In addition, these risk measures find application in the insurance regulation
frameworks of Solvency II and the Swiss Solvency Test. See Danielsson et al.
(2001), Embrechts et al. (2014), and the references therein for a discussion
on the usage of these risk measures for regulatory purposes. Both VaR and
AVaR are comonotonic additive and, therefore, they fall as special cases of our
results. For example, from Theorem 2 one concludes that the acceptance sets
that generate VaR and AVaR are comonotonic convex with comonotonic convex
complements.
f) Theorem 1 does not stand as our primary contribution to the literature, yet
it lays out the fundamental elements underpinning our work. Following your
recommendation, we discuss the financial implications of the assumptions and
results presented in the theorem (pg. 6).
The convexity condition on A ∩ C captures the idea that diversification among
random variables in C does not cause harm or, in other words, does not com-
promise the acceptability of the positions. The convexity of A∁ ∩C, on the other
hand, reflects the view that in what positions in the set C ⊂ X are regarded,
one should not be able to turn unacceptable positions into acceptable by taking
convex combinations of them. The third item is the basis of our contribution
to the theory of risk measures. It shows that the additivity property in C ⊆ X
for risk measures is associated with the convexity property for A and A∁ with
respect to random variables in C.
g) Theorem 2 presents our main contribution regarding risk measures. We discuss
the meaning of its assumptions in the following paragraph (pg. 7):
The condition of comonotonic convexity on A and A∁ is the key for the above re-
sult. The financial motivation that may lead one to require comonotonic convex-
ity on A∁ is broadly accepted in the literature: comonotonic random variables do
not hedge each other and, therefore, there is no benefit in pulling them together
as compared to holding them as stand-alone positions (see Yaari (1987) and
Wang et al. (1997), for instance). When applied to the acceptance set A, the
property of comonotonic convexity reflects the view that diversification among
comonotonic random variables does not cause any harm as well. Comonotonic
convex acceptance sets were also considered in Heyde et al. (2007), Kou and
Peng (2016), and Jia et al. (2020). Notice that this assumption is considerably
weaker than the assumption of convexity (item C of Definition 2), which lies
at the basis of the theory (see, for instance, Artzner et al. (1999) and Föllmer

3
 and Schied (2002)).
h) In Section 3, Definition 5 outlines the properties for acceptance sets associated
with deviation measures (pg. 8). Following this, we included the following
paragraph:
The property of star-shapedness captures the rationale that a position X ∈ A
should not lose its acceptability once the investor reduces its scale. This prop-
erty gained momentum only recently, with the contribution of Castagnoli et al.
(2022) and posterior contributions such as Moresco and Righi (2022), Righi
(2021), Righi and Moresco (2022), and Moresco et al. (2023). The intuitive
basis for the property of stability under scalar addition is that, in what deviation
is regarded, shifting a random variable by a constant term is immaterial. Notice
that star-shapedness implies that 0 ∈ A. Consequently, stability under scalar
addition implies c ∈ A, ∀c ∈ R, hence one can increase the scale of constants
indefinitely without compromising their acceptability. The converse of this im-
plication is captured by the property of radially boundedness at non-constants:
the only acceptable random variables that can be extended indefinitely without
compromising their acceptability are the constants.
i) In Definition 6 (pg. 8), we present the properties for deviation measures, whose
financial meaning we explained in the following paragraph:
The property of non-negativeness is in accordance with the idea that positive
and negative deviations do not cancel each other; they only accumulate. The
intuition for translation insensitivity is the same as that for the property of
stability under scalar addition for acceptance sets. The property of positive
homogeneity embodies the view that, as the scale of a financial position changes,
the deviation not only changes in the same direction (increasing as the position
gets larger, for instance) but also changes in the same linear proportion.
j) Theorem 3 (pg. 9) sets the basis for our main result on deviation measures
(Theorem 4). Following your recommendation, we explain the financial insights
of the theorem in the next paragraph.
The basis for items 1 and 2 is that convexity applied to A (A∁ , respectively)
captures the notion that diversification does not compromise acceptability (does
not bring benefit, respectively). Theorem 3 shows that convexity for acceptance
sets is related to convexity for deviation measures. On the other hand, in which
the complement of an acceptance set is regarded, convexity is associated with the
property of concavity for the respective deviation measure. As a consequence of
items 1 and 2, we show in item 3 that convexity on both A and A∁ is associated
with deviation measures that are convex and concave and, therefore, additive.
This result relates directly to our main result regarding comonotonic additive
deviation measures (Theorem 4, item 1). The fourth item of the above theorem
is the converse of the third, showing that AD and A∁D are both convex in the
domain where D is additive.
k) Theorem 4 (pg. 10) is our main theorem regarding deviation measures. We
discuss it in the following paragraph:
The first item is the main contribution of Theorem 4. It directly implies that,
if A is a comonotonic convex Minkowski acceptance set (Definition 5) such
that A∁ is also comonotonic convex, then the deviation measure it induces,
DA , is comonotonic additive. The property of comonotonic convexity for a
Minkowski acceptance set A, as well as for its complement, A∁ , has the same

4
 financial meaning as for acceptance sets associated with risk measures. When
imposed on A∁ , the property of comonotonic convexity embodies the notion
that diversification among comonotonic random variables brings no benefits.
This is due to the lack of hedging between comonotonic random variables. The
property of comonotonic convexity on A, on the other hand, is a weaker form
of convexity than that required in the seminal paper of Rockafellar et al. (2006),
as well as in the handbook treatment presented in Pflug (2006), or in the work
of Moresco et al. (2023).

Responses to the Reviewer #1

Dear Reviewer #1, in this section we describe in detail the changes we made to
address your recommendations. Also, please note that, in the new version of the
manuscript, we allocated the proofs in the Appendix, to appear online as Supple-
mental Material.
1. Following the conditions, see e.g. Theorem 1. Please write about the actual
interpretations of A ∩ C and A∁ ∩ C being convex in the sense of risk theory.
Moreover, is there a deep qualitative interpretation of the proposed general
conditions?
Dear reviewer, thank you for pointing out the absence of interpre-
tation following our main results, such as Theorem 1. To address your
recommendation, we made the following changes:
(a) We added the following paragraph after Theorem 1 (pg. 6):
The convexity condition on A ∩ C captures the idea that diver-
sification among random variables in C does not cause harm or,
in other words, does not compromise the acceptability of the po-
sitions. The convexity of A∁ ∩ C, on the other hand, reflects the
view that in what positions in the set C ⊂ X are regarded, one
should not be able to turn unacceptable positions into acceptable by
taking convex combinations of them. The third item is the basis
for our contribution to the theory of risk measures. It shows that
the additivity property in C ⊆ X for risk measures is associated
with the convexity property for A and A∁ with respect to random
variables in C.
(b) We added the following paragraph after Theorem 2 (pg. 7):
The condition of comonotonic convexity on A and A∁ is the key
for the above result. The financial motivation that may lead one
to require comonotonic convexity on A∁ is broadly accepted in the
literature: comonotonic random variables do not hedge each other
and, therefore, there is no benefit in pulling them together as com-
pared to holding them as stand-alone positions (see Yaari (1987)
and Wang et al. (1997), for instance). When applied to the ac-
ceptance set A, the property of comonotonic convexity reflects the
view that diversification among comonotonic random variables does
not cause any harm as well. Comonotonic convex acceptance sets
were also considered in Heyde et al. (2007), Kou and Peng (2016),
and Jia et al. (2020). Notice that this assumption is considerably
weaker than the assumption of convexity (item C of Definition 2),
which lies at the basis of the theory (see, for instance, Artzner et al.
(1999) and Föllmer and Schied (2002)).

5
 (c) We added the following paragraph after Theorem 3 (pg. 9):
The basis for items 1 and 2 is that convexity applied to A (A∁ , re-
spectively) captures the notion that diversification does not compro-
mise acceptability (does not bring benefit, respectively). Theorem 3
shows that convexity for acceptance sets is related to convexity for
deviation measures. On the other hand, in which the complement
of an acceptance set is regarded, convexity is associated with the
property of concavity for the respective deviation measure. As a
consequence of items 1 and 2, we show in item 3 that convexity
on both A and A∁ is associated with deviation measures that are
convex and concave and, therefore, additive. This result relates
directly to our main result regarding comonotonic additive devia-
tion measures (Theorem 4, item 1). The fourth item of the above
theorem is the converse of the third, showing that AD and A∁D are
both convex in the domain where D is additive.
(d) We added the following paragraph after Theorem 4 (pg. 10):
The first item is the main contribution of Theorem 4. It directly
implies that, if A is a comonotonic convex Minkowski acceptance
set (Definition 5) such that A∁ is also comonotonic convex, then
the deviation measure it induces, DA , is comonotonic additive.
The property of comonotonic convexity for a Minkowski acceptance
set A, as well as for its complement, A∁ , has the same finan-
cial meaning as for acceptance sets associated with risk measures.
When imposed on A∁ , the property of comonotonic convexity em-
bodies the notion that diversification among comonotonic random
variables brings no benefits. This is due to the lack of hedging
between comonotonic random variables. The property of comono-
tonic convexity on A, on the other hand, is a weaker form of con-
vexity than that required in the seminal paper of Rockafellar et al.
(2006), as well as in the handbook treatment presented in Pflug
(2006), and in the work of Moresco et al. (2023).
2. Quote from Page 2: ”...we are interested in the additive property for random
variables with specific dependence structures, such as independent, uncorre-
lated, and mainly, comonotonic random variables; that is, we do not require
the risk measure to be additive in its whole domain, but just for specific random
variables which, under some criterion, neither provide diversification benefit nor
harm.” When dealing with financial risks, it is common to have a dependence
structure and correlations between the risks. Can we get similar results in case
of weak correlations between the random variables?
Dear reviewer, our results hold for random variables with weak
correlations, as soon as they are comonotonic. We explained it in
detail in the following paragraph, which we added as a remark after
Theorem 2:
The property of comonotonicity implies a very precise dependence
structure, as described in Definition 1. The covariance, on the other
hand, is a measure of linear association such that, if X, Y are comono-
tonic and non-constants, then Cov(X, Y ) > 01 . Therefore, in what
1
This holds for, if X, Y is comonotonic, then they are positive quadrant dependent, which implies Cov(X, Y ) ⩾
0. Now, for positive quadrant dependent X, Y , one has Cov(X, Y ) = 0 if and only if they are independent. Please
see Definition 4 in Wang and Dhaene (1998) and Proposition 2.5 in Denuit and Dhaene (2003) for details.

6
 non-constant random variables are regarded, Theorem 2 applies only
to positively correlated random variables. In addition, notice that, if
d d
X, Y are comonotonic and Z = X and W = Y , then Z and W are
comonotonic if and only if Cov(Z, W ) = Cov(X, Y ). This fact also
helps to understand the set of random variables to which Theorem 2
applies. It is valid to notice, however, that the covariance (and cor-
relation) between comonotonic random variables are not necessarily
“high”, as the dependence structure between random variables may be
non-linear and, therefore, not reflected by the covariance.
3. Both Figure 1 and its caption need to be clearly presented, which currently is
not the case.
Dear reviewer, we have concluded that Figure 1 is not highly rel-
evant to the main thesis of the paper. Due to space constraints, we
have opted to remove Figure 1 from the manuscript.

4. Can the proposed conditions be extended to the case of dynamic risk and
deviation measures, and if so, how?
We believe that the result can be extended, but this endeavor may
turn out to be nontrivial. We mentioned this possibility on pg. 7, with
the following paragraph:
An interesting topic for future research is to search for a coun-
terpart of Theorem 2 in the dynamic framework, i.e., when the risk
measurements are updated over time based on new information. For a
literature review on this topic, see Acciaio and Penner (2011) and, for
handbook treatments, Föllmer and Schied (2016) and Delbaen (2011).
We will not pursue this endeavor here. Note that the concept of
comonotonic random variables in the dynamic framework must be re-
placed by that of conditional comonotonic random variables, which was
developed in Jouini and Napp (2004). This remark also applies to
comonotonic additive deviation measures, which we study in the next
section.

5. I would suggest adding a paragraph discussing how the proposed results can
be implemented in actual data and providing some statistical aspects to the
proposed results.
Dear reviewer, thanks for the suggestion. We added the following
paragraph on pg. 7:
The condition of comonotonic convexity on acceptance sets allows
their induced risk measure to be computed as a Riemann integral in
terms of quantiles Acerbi (2002); Föllmer and Schied (2016), which
are much simpler than the robust representation of coherent risk mea-
sures Artzner et al. (1999); Delbaen (2002). Notice that this simplified
representation was essential to the study of statistical properties of
comonotonic additive risk measures. Main streams in this literature
investigate the property of elicitability and statistical robustness of risk
measures (Bellini and Bignozzi, 2015; Cont et al., 2010).

7
Responses to the Reviewer #2
Dear Reviewer #2, in this section we describe in detail the changes we made to
address your recommendations. Also, please note that, in the new version of the
manuscript, we allocated the proofs in the Appendix, to appear online as Supple-
mental Material.
1. The main concern is that the paper seems to lack interpretation of the main
results. The research is motivated by diversification arguments, and finan-
cial regulations. After the main results (Theorems 2 and 4), the section ends
abruptly, and it is hard to understand why those results are relevant. A dis-
cussion about their relevance to the regulator or the firm is necessary in my
opinion.
Dear reviewer, thank you for emphasizing the need for a more
thorough discussion of our results. We have incorporated several
paragraphs dedicated to this discussion, along with providing insights
into the required conditions. These paragraphs have been transcribed
above in our response to Reviewer #1’s initial recommendation.
Additionally, we included the following paragraph, which hopefully
directly addresses your request for a discussion about the relevance of
our results in the context of financial regulation (pg. 5):
The widely used value-at-risk (VaR) and average value-at-risk
(AVaR) are defined, respectively, for some significance level p ∈ (0, 1),
as
1 p
Z
−
VaRp (X) = q−X (1−p), and AVaRp (X) = VaRq (X) dq, ∀X ∈ X ,
p 0
−
where qX (p) = inf{x ∈ R : FX (x) ⩽ p}. Both VaR and AVaR are used
in the banking regulation framework of Basel III/IV. Also, these risk
measures find application in the insurance regulation frameworks of
Solvency II and the Swiss Solvency Test. See Danielsson et al. (2001),
Embrechts et al. (2014), and the references therein for a discussion on
the usage of these risk measures for regulatory purposes. Both VaR
and AVaR are comonotonic additive and, therefore, they fall as special
cases of our results. For instance, one concludes from Theorem 2
that the acceptance sets that generate VaR and AVaR are comonotonic
convex with comonotonic convex complements.
2. In Definition 5, can you clarify the star-shaped property? it seems to be dif-
ferent from what is described in Remark 1.
Dear reviewer, we found that Remark 1 did not add substantial
value to the main thesis of the paper. Consequently, we have opted
to exclude it. Nevertheless, the difference between the two definitions
of star-shapedness lies in the fact that the definition in Remark 1
(from the first version) pertains to functionals, whereas Definition 5 is
associated with sets. A functional is deemed star-shaped if and only if
its sub-level set at 0 displays star-shaped properties. This is the origin
of the nomenclature.
3. In the Proof of Theorem 3, can you add more details on how Item 1 follows
from Lemma 4?

8
 Dear reviewer, thank you for highlighting the need for more details
regarding that implication. We have added the following sentence in
the proof:
Item 1 is true for, on the one hand, item 3 of Lemma 4 implies that
DA is convex and, on the other hand, item 4 of Lemma 4 implies that
DA is a deviation measure and, therefore, it is positive homogeneous
(please see Definition 6).
4. In Remark 4, the authors write ’bd C and int C the interior and boundary of
C’. I suppose they mean the opposite, i.e. ’the boundary and the interior of
C’, respectively
Dear reviewer, thank you for bringing that to our attention. The
purpose of Remark 4 and its corresponding Figure 1 was to provide a
counter-example demonstrating the impossibility of altering the condi-
tions stated in our Theorem 3. However, considering the minor contri-
bution of this counter-example and the necessity of adding discussions,
we have decided to exclude it from the manuscript.

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Highlights (for review)

Highlights: A note on the induction of comonotonic additive

risk measures from acceptance sets
Samuel S. Santos∗ Marlon R. Moresco† Marcelo B. Righi‡
University of Waterloo Concordia University Federal University of Rio Grande do Sul
§
Eduardo Horta
Federal University of Rio Grande do Sul

December 14, 2023

• We study the acceptance sets of comonotonic additive risk and deviation measures
• These sets must be comonotonic convex with comonotonic convex complements
• Our result generalizes to risk measures additive for independent random variables

∗ Corresponding author. ssolgons@uwaterloo.ca. Room 3102, 200 University Avenue West, Waterloo, ON,

Canada. Declarations of interest: none.

† marlon.moresco@concordia.ca. Room LB-901, J.W. McConnell Building (LB), 1400 De Maisonneuve Blvd.

W., Montreal, QC, Canada. Declarations of interest: none.

‡ marcelo.righi@ufrgs.br. Av. João Pessoa, 52 - Centro Histórico, Porto Alegre, RS, Brazil. Declarations of

interest: none.
§ eduardo.horta@ufrgs.br. Av. Bento Gonçalves, 9500 - Agronomia, Porto Alegre, RS, Brazil. Declarations

of interest: none.

1
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Credit Author Statement: A note on the induction of comonotonic

additive risk measures from acceptance sets

Samuel S. Santos∗ Marlon R. Moresco† Marcelo B. Righi‡

University of Waterloo Concordia University Federal University of Rio Grande do Sul

§
Eduardo Horta
Federal University of Rio Grande do Sul

December 14, 2023

Author contributions

• Samuel S. Santos: Conceptualization; Methodology; Formal Analysis; Writing – original draft;

Writing – review & editing.

• Marlon R. Moresco: Conceptualization; Methodology; Formal Analysis; Writing – original

draft; Writing – review & editing.

• Marcelo B. Righi: Conceptualization; Methodology; Formal Analysis; Project Administra-

tion; Supervision; Writing – original draft.

• Eduardo de O. Horta: Conceptualization; Methodology; Formal Analysis; Project Adminis-

tration; Supervision; Writing – original draft.

∗
Corresponding author. ssolgons@uwaterloo.ca. Room 3102, 200 University Avenue West, Waterloo, ON, Canada.
Declarations of interest: none.
†
marlon.moresco@concordia.ca. Room 1028, J.W. McConnell Building (LB), 1400 De Maisonneuve Blvd. W.,
Montreal, QC, Canada. Declarations of interest: none.
‡
marcelo.righi@ufrgs.br. Room 445, Av. João Pessoa, 52 - Centro Histórico, Porto Alegre, RS, Brazil. Declarations
of interest: none.
§
eduardo.horta@ufrgs.br. Room B115, Av. Bento Gonçalves, 9500 - Agronomia, Porto Alegre, RS, Brazil. Decla-
rations of interest: none.

1
Revised manuscript (clean version)

A note on the induction of comonotonic additive risk measures from

acceptance sets

Samuel S. Santos∗ Marlon R. Moresco† Marcelo B. Righi‡

University of Waterloo Concordia University Federal University of Rio Grande do Sul

§
Eduardo Horta
Federal University of Rio Grande do Sul

December 14, 2023

Abstract

We demonstrate that an acceptance set generates a comonotonic additive risk measure if and
only if the acceptance set and its complement are closed for convex combinations of comonotonic
random variables. Furthermore, this equivalence extends to deviation measures.

Keywords: Acceptance sets; Comonotonicity; Risk measures; Deviation measures; Comonotonic

additive risk measures; Comonotonic additive deviation measures.

1 Introduction

The notion of risk is rooted in two fundamental concepts: the potential for adverse outcomes and the

variability in expected results. Traditionally, risk has been understood as a measure of dispersion,

such as the standard deviation, in line with the second concept (Markowitz, 1952). However, the

occurrence of critical events has brought attention to tail risk measurement, exemplified by well-

known measures such as Value at Risk (VaR) and Expected Shortfall (ES) (Danielsson et al., 2001;
∗
Corresponding author. ssolgons@uwaterloo.ca. Room 3102, 200 University Avenue West, Waterloo, ON, Canada.
Declarations of interest: none.
†
marlon.moresco@concordia.ca. Room 1028, J.W. McConnell Building (LB), 1400 De Maisonneuve Blvd. W.,
Montreal, QC, Canada. Declarations of interest: none.
‡
marcelo.righi@ufrgs.br. Room 445, Av. João Pessoa, 52 - Centro Histórico, Porto Alegre, RS, Brazil. Declarations
of interest: none.
§
eduardo.horta@ufrgs.br. Room B115, Av. Bento Gonçalves, 9500 - Agronomia, Porto Alegre, RS, Brazil. Decla-
rations of interest: none.

1
Embrechts et al., 2014). Notably, these risk measures capture the potential of extreme adverse events,

thus incorporating the first concept.

In the theory of risk management, each risk measure (deviation measure, respectively) has an

associated acceptance set, which consists of the financial positions that have non-positive risk (non-

positive deviation measurement, respectively). An acceptance set represents a financial regulator’s

criterion to distinguish between acceptable financial positions (those belonging to the acceptance

set) and non-acceptable. Monetary risk measures indicate the minimum amount of cash addition or

asset addition required to turn not acceptable positions into acceptable ones. This idea goes back to

Artzner et al. (1999). Deviation measures, on the other hand, may not reflect tail risk, as they are

designed to quantify deviation. In analogy to Artzner et al. (1999), Moresco et al. (2023) associated

deviation measures to acceptance sets, showing that the deviation measures proposed in Rockafellar

et al. (2006) represent how much a position must be shrunk or deleveraged to become acceptable.

Rockafellar et al. (2006) is a landmark work in the axiomatic study of deviation measures, and Pflug

and Romisch (2007) provides a handbook treatment. As further references on the topic, Nendel

et al. (2021) and Righi (2019) studied the connection between risk, deviation measures, and premium

principles.

From an axiomatic point of view, the properties of a risk/deviation measure directly translate into

attributes of its acceptance set. For example, it is well known that a risk measure is law-invariant,

convex, positive homogeneous, and star-shaped if and only if its acceptance set is law-invariant,

convex, conic, and star-shaped (see Föllmer and Schied (2016) and Castagnoli et al. (2022) for details).

Moresco et al. (2023) provides analogous results for deviation measures.

Our main contribution is to present a clear link between acceptance sets and risk measures that

are additive for comonotonic random variables, i.e. for random variables that never hedge each other

(see Definition 1).

The property of comonotonic additivity of a risk measure captures the well-accepted notion that,

since comonotonic random variables do not hedge each other, there is no benefit in holding them

together as compared to holding them as stand-alone positions. If there were some diversification

benefits in holding them together, we would require the acceptance set and the risk measure to be

convex for comonotonic random variables. For a discussion on convexity, see Dhaene et al. (2008),

Tsanakas (2009), and Rau-Bredow (2019). If it were more risky to hold them together, the risk

measure would be concave for comonotonic random variables. From the perspective of acceptance sets,

it translates into requiring the acceptance set’s complement to be convex for comonotonic random

2
variables. As our main result, we show that, if the risk of two positions is the same regardless of

whether they are in the same portfolio or not, then a combination of the two aforementioned concepts

emerges. In this case, the risk measure should be both convex and concave for comonotonic random

variables, and both the acceptance set and its complement should be convex for comonotonic random

variables. Also, we present an analog of this result for deviation measures.

The results presented in Rieger (2017) are related to ours. He presented a detailed study of

the geometry of the acceptance sets that induce comonotonic additive risk measures. The analysis

developed by Rieger (2017), however, strongly depends on two assumptions: the probability space

must be finite and the risk measures, in addition to being comonotonic additive, must also be convex.

Our results, on the other hand, hold for risk measures defined in any Hausdorff topological vector

space containing the essentially bounded random variables and our findings are not restricted to

convex risk measures.

The reader will find the proofs and auxiliary results in the online section Supplemental Materials.

Regarding basic notation, let (Ω, F, P) be a probability space and L0 ..= L0 (Ω, F, P) the space of

equivalence classes of random variables (under the P-a.s. relation) and L∞ ..= L∞ (Ω, F, P) = {X ∈

L0 : ∥X∥∞ < +∞}, where ∥X∥∞ = inf{m ∈ R : |X| < m} for all X ∈ L0 . We denote the cumulative

distribution function of a random variable X ∈ X as FX (x) ..= P(X ⩽ x), for x ∈ R. Equalities

and inequalities must be understood in the P-a.s. sense. For generality, we work on a Hausdorff

topological vector space X such that L∞ ⊆ X ⊆ L0 . The elements X ∈ X represent discounted net

financial payoffs. We identify R ≡ {X ∈ X : X = c for some c ∈ R}. For any subset A ⊆ X , we

denote conv(A), cone(A), A∁ the convex hull, conic hull, and complement of A, respectively. Also, for

any two sets A, B ⊆ X , we denote A + B = {X ∈ X : X = Y + Z, Y ∈ A, Z ∈ B}.

2 Monetary risk measures

We begin with some terminology on acceptance sets and monetary risk measures.

Definition 1. Two random variables X, Y ∈ X are comonotonic if

(X(ω) − X(ω ′ ))(Y (ω) − Y (ω ′ )) ⩾ 0 P ⊗ P-a.s. (1)

The distinctive feature of comonotonic random variables is that they do not hedge each other. In

addition, X, Y are comonotonic if and only if FX,Y (x, y) = min{FX (x), FY (y)}, for all (x, y) ∈ R2 .

3
For further details and other characterizations of comonotonic random variables, see Theorem 2.14 of

Rüschendorf (2013) and Theorem 4 of Dhaene et al. (2020).

Definition 2. A nonempty set A ⊆ X is called an acceptance set. It is a monetary acceptance

set if satisfies the following:

A. (Monotonicity) A is monotone if X ∈ A and X ⩽ Y implies Y ∈ A.

B. (Normalization) A is normalized if inf{m ∈ R : m ∈ A} = 0.

In addition, an acceptance set may fulfill:

C. (Convexity) A is convex if λA + (1 − λ)A ⊆ A whenever λ ∈ [0, 1].

We say that any set is comonotonic convex if X, Y ∈ A implies λX + (1 − λ)Y ∈ A for all

comonotonic pairs X, Y ∈ X .

The property of monotonicity is a basic requirement for acceptance sets: if the regulator accepts

X while Y pays more than X with probability one, then Y should also be acceptable. The property

of normalization captures the idea that holding no financial asset (and therefore incurring no risk of

loss) is acceptable. The property of convexity (concavity, respectively) corresponds to the requirement

that diversification does not increase (decrease, respectively) the risk. Accordingly, the property of

comonotonic convexity for acceptance sets represents the notion that diversification among comono-

tonic random variables does not cause harm to the portfolio (comonotonic convex acceptance sets

were studied in Kou et al. (2013) and Jia et al. (2020)).

Definition 3. A functional ρ : X → R ∪ {∞} is called a risk measure if it satisfies:

1. (Monotonicity) ρ is monotone if ρ(Y ) ⩽ ρ(X) whenever X ⩽ Y for X, Y ∈ X .

2. (Cash invariance) ρ is cash invariant if ρ(X − m) = ρ(X) + m for any X ∈ X and m ∈ R.

3. (Normalization) ρ is normalized if ρ(0) = 0.

In addition, a functional may fulfill the following for some set C ⊆ X :

4. (Convexity) ρ is convex in C if ρ(λX + (1 − λ)Y ) ⩽ λρ(X) + (1 − λ)ρ(Y ) for all λ ∈ [0, 1] and

X, Y ∈ C.

5. (Concavity) ρ is concave in C if ρ(λX + (1 − λ)Y ) ⩾ λρ(X) + (1 − λ)ρ(Y ) for all λ ∈ [0, 1]

and X, Y ∈ C.

4
 6. (Additivity) ρ is additive in C if ρ(X + Y ) = ρ(X) + ρ(Y ) for all X, Y ∈ C.

If C = X , we simply refer to the functional as convex, concave, or additive. If ρ is convex/concave/additive

for comonotonic pairs, then we say that it is comonotonic convex/concave/additive.

The meaning of these axioms is analogous to their counterparts for acceptance sets. For example,

the above axiom of monotonicity requires that if the payout of a financial position X is always smaller

than that of Y , then the risk of X—and therefore its regulatory capital—must be greater than that

of Y . The translation invariance axiom says that if the future (unknown) result X is depleted by

a known amount m ∈ R, becoming X − m, then the same amount must be added to the original

regulatory capital to maintain the same level of risk. The axiom of convexity (concavity, respectively)

aims to capture the possibility that diversification may be beneficial (may cause harm, respectively).

Additivity, as a combination of convexity and concavity, captures the notion that diversification brings

no harm and no benefits. In what comonotonic random variables are regarded, the lack of hedging

among them implies that one cannot benefit from pooling them together, but, on the other hand,

there is also no harm in doing so. For risk (and deviation) measures, this translates into “the risk

of the sum should be the sum of the risks”, which then provides the intuitive basis for the axiom of

comonotonic additivity.

Example 1. The widely used value-at-risk (VaR) and average value-at-risk (AVaR) are defined, for

all X ∈ X and some significance level p ∈ (0, 1), as VaRp (X) = inf{x ∈ R : F−X (x) ⩾ 1 − p} and
Rp
AVaRp (X) = p1 0 VaRq (X) dq. Both VaR and AVaR are used in the Basel III / IV banking regulatory

framework. In addition, these risk measures find application in the insurance regulation frameworks

of Solvency II and the Swiss Solvency Test. See Danielsson et al. (2001), Embrechts et al. (2014), and

the references therein for a discussion on the usage of these risk measures for regulatory purposes.

Both VaR and AVaR are comonotonic additive and, therefore, they fall as special cases of our results.

For example, from Theorem 2 one concludes that the acceptance sets that generate VaR and AVaR

are comonotonic convex with comonotonic convex complements.

Definition 4. Let ρ be a risk measure and A a monetary acceptance set.

1. The acceptance set induced by ρ is defined as Aρ ..= {X ∈ X : ρ(X) ⩽ 0}.

2. The risk measure induced by A is defined as ρA (X) ..= inf{m ∈ R : X + m ∈ A}, ∀ X ∈ X .

The set Aρ comprises the financial positions that are acceptable according to the risk measure ρ.

Conversely, an acceptance set A induces the risk measure ρA in Definition 4. Following the landmark

5
insight of Artzner et al. (1999), ρA (X) represents the amount of cash that must be added to X to

make it acceptable1 .

The next result gives us sufficient conditions to induce convex/concave/additive risk measures

from acceptance sets. As we will formally state in Definition 5, a set C ⊆ X is stable under scalar

addition if C + R = C.

Theorem 1. Let A be a monetary acceptance set and C ⊆ X be stable under scalar addition.

1. If A ∩ C is convex, then ρA is convex in C.

2. If A∁ ∩ C is convex, then ρA is concave in C.

3. If A∁ ∩ C and A ∩ C are convex, then ρA is additive in C.

Furthermore, the converse implications hold if A is closed and C is convex.

The convexity condition on A ∩ C captures the idea that diversification among random variables

in C does not cause harm or, in other words, does not compromise the acceptability of the positions.

The convexity of A∁ ∩ C, on the other hand, reflects the view that in what positions in the set C ⊂ X

are regarded, one should not be able to turn unacceptable positions into acceptable by taking convex

combinations of them. The third item is the basis for our contribution to the theory of risk measures.

It shows that the additivity property in C ⊆ X for risk measures is associated with the convexity

property for A and A∁ with respect to random variables in C.

For a given (fixed) X ∈ X , examples of classes of financial positions (sets C ⊆ X in the above

theorem) for which the previous results hold are the class of random variables independent of X,
ind = {Y ∈ X : X and Y are independent}, the set of random variables that have the same
namely CX

covariance with X, that is {Y ∈ X : Cov(X, Y ) = α}, for α ∈ R and, in particular, the set of affine

transformations of X, namely {Y ∈ X : Cov(X, Y ) = 1}. As an application of Theorem 1, notice

ind ∩ A and C ind ∩ A∁ are convex (which does not require that A or A∁ is convex), then
that, if CX X

ρA is additive for independent random variables. This closely relates to the literature on additive

risk measures and premium principles (see, for instance, Goovaerts et al. (2004), and Goovaerts et al.

(2010)).

Theorem 2. Let A be a monetary acceptance set and ρ a risk measure. Then we have the following:
1
Assuming that the regulatory reserves are composed of cash simplifies the exposition, but it is not necessary for the
main theory. See Artzner et al. (2009) for a deeper discussion on this topic.

6
 1. If A and A∁ are comonotonic convex, then ρA is comonotonic additive. The converse implication

holds if A is closed.

2. The risk measure ρ is comonotonic additive if and only if Aρ and A∁ρ are comonotonic convex.

The condition of comonotonic convexity on A and A∁ is the key for the above result. The financial

motivation that may lead one to require comonotonic convexity on A∁ is broadly accepted in the

literature: comonotonic random variables do not hedge each other and, therefore, there is no benefit

in pulling them together as compared to holding them as stand-alone positions (see Yaari (1987) and

Wang et al. (1997), for instance). When applied to the acceptance set A, the property of comonotonic

convexity reflects the view that diversification among comonotonic random variables does not cause

any harm as well. Comonotonic convex acceptance sets were also considered in Heyde et al. (2007),

Kou and Peng (2016), and Jia et al. (2020). Notice that this assumption is considerably weaker than

the assumption of convexity (item C of Definition 2), which lies at the basis of the theory (see, for

instance, Artzner et al. (1999) and Föllmer and Schied (2002)).

Remark 1. The property of comonotonicity implies a very precise dependence structure, as described

in Definition 1. The covariance, on the other hand, is a measure of linear association such that, if

X, Y are comonotonic and non-constants, then Cov(X, Y ) > 02 . Therefore, in what non-constant

random variables are regarded, Theorem 2 applies only to positively correlated random variables.
d d
In addition, notice that, if X, Y are comonotonic and Z = X and W = Y , then Z and W are

comonotonic if and only if Cov(Z, W ) = Cov(X, Y ). This fact also helps to understand the set of

random variables to which Theorem 2 applies. It is valid to notice, however, that the covariance (and

correlation) between comonotonic random variables are not necessarily “high”, as the dependence

structure between random variables may be non-linear and, therefore, not reflected by the covariance.

Remark 2. The condition of comonotonic convexity on acceptance sets allows their induced risk

measure to be computed as a Riemann integral in terms of quantiles Acerbi (2002); Föllmer and

Schied (2016), which are much simpler than the robust representation of coherent risk measures

Artzner et al. (1999); Delbaen (2002). Notice that this simplified representation was essential to the

study of statistical properties of comonotonic additive risk measures. Main streams in this literature

investigate the property of elicitability and statistical robustness of risk measures (Bellini and Bignozzi,

2015; Cont et al., 2010).

2
This holds for, if X, Y is comonotonic, then they are positive quadrant dependent, which implies Cov(X, Y ) ⩾ 0.
Now, for positive quadrant dependent X, Y , one has Cov(X, Y ) = 0 if and only if they are independent. Please see
Definition 4 in Wang and Dhaene (1998) and Proposition 2.5 in Denuit and Dhaene (2003) for details.

7
Remark 3. An interesting topic for future research is to search for a counterpart of Theorem 2 in the

dynamic framework, i.e., when the risk measurements are updated over time based on new information.

For a literature review on this topic, see Acciaio and Penner (2011) and, for handbook treatments,

Föllmer and Schied (2016) and Delbaen (2011). We will not pursue this endeavor here. Note that

the concept of comonotonic random variables in the dynamic framework must be replaced by that

of conditional comonotonic random variables, which was developed in Jouini and Napp (2004). This

remark also applies to comonotonic additive deviation measures, which we study in the next section.

3 Deviation measures

The basic reasoning that led to Theorem 2 also applies to deviation measures but with different

technical machinery. In this section, the acceptability of financial positions is determined by their

“deviation”, not by their risks. To explore this further, we introduce additional properties that

comprise the basic setup to study deviation measures.

Definition 5. An acceptance set A is a Minkowski acceptance set if it satisfies the following:

D. (Star-shapedness) A is star-shaped if λX ∈ A, for every X ∈ A and λ ∈ [0, 1].

E. (Stability under scalar addition) A is stable under scalar addition if A + R = A, that is, if

X + c ∈ A, for all X ∈ A and c ∈ R.

F. (Radial boundedness at non-constants) A is radially bounded at non-constants if, for every

X ∈ A\R, there is some δX ∈ (0, ∞), such that δX ∈

/ A whenever δ ∈ [δX , ∞).

The property of star-shapedness captures the rationale that a position X ∈ A should not lose

its acceptability once the investor reduces its scale. This property gained momentum only recently,

with the contribution of Castagnoli et al. (2022) and posterior contributions such as Moresco and

Righi (2022), Righi (2021), Righi and Moresco (2022), and Moresco et al. (2023). The intuitive basis

for the property of stability under scalar addition is that, in what deviation is regarded, shifting a

random variable by a constant term is immaterial. Notice that star-shapedness implies that 0 ∈ A.

Consequently, stability under scalar addition implies c ∈ A, ∀c ∈ R, hence one can increase the scale

of constants indefinitely without compromising their acceptability. The converse of this implication

is captured by the property of radially boundedness at non-constants: the only acceptable random

variables that can be extended indefinitely without compromising their acceptability are the constants.

8
Definition 6. For a functional D : X → [0, +∞] we define its sub-level sets as AD ..= {X ∈

X : D(X) ⩽ 1}. Further, D is a deviation measure if it fulfills:

1. (Non-negativity) D is non-negative if D(X) > 0 for any non-constant X ∈ X and D(c) = 0

for any constant c ∈ R.

2. (Translation insensitivity) D is translation insensitive if D(X + c) = D(X) for any X ∈ X

and c ∈ R.

3. (Positive homogeneity) D is positive homogeneous if D(λX) = λD(X) for any X ∈ X and

λ ⩾ 0.

A deviation measure may also satisfy the properties in Definition 3.

The property of non-negativeness is in accordance with the idea that positive and negative devi-

ations do not cancel each other; they only accumulate. The intuition for translation insensitivity is

the same as that for the property of stability under scalar addition for acceptance sets. The property

of positive homogeneity embodies the view that, as the scale of a financial position changes, the devi-

ation not only changes in the same direction (increasing as the position gets larger, for instance) but

also changes in the same linear proportion.

In the following, we define the Minkowski Deviations, which was introduced in Moresco et al.

(2023).

Definition 7. Let A ⊆ X . The Minkowski Deviation of A is the functional DA : X → [0, +∞]

defined, for X ∈ X , by

DA (X) ..= inf m > 0 : m−1 X ∈ A ,


(2)

where inf ∅ = +∞.

We now prove a result regarding the (sub/super) additivity of deviation measures, which is essential

for the main result.

Theorem 3. Let A ⊆ X be a Minkowski acceptance set. Then we have that:

1. If A is convex, then DA is sub-linear (convex and positive homogeneous).

2. If A∁ is convex, then DA is super-linear (concave and positive homogeneous) on cone(A∁ ), that

is, DA (X + Y ) ⩾ DA (X) + DA (Y ) for any X, Y ∈ cone(A∁ ).

9
 3. If C ⊆ cone(A∁ ) is a cone for which both A ∩ C and A∁ ∩ C are convex sets, then DA respects

DA (X + Y ) = DA (X) + DA (Y ) for every X, Y ∈ C.

4. If D is additive in some convex cone C, then AD ∩ C and (AD )∁ ∩ C are convex sets.

The basis for items 1 and 2 is that convexity applied to A (A∁ , respectively) captures the notion

that diversification does not compromise acceptability (does not bring benefit, respectively). Theo-

rem 3 shows that convexity for acceptance sets is related to convexity for deviation measures. On the

other hand, in which the complement of an acceptance set is regarded, convexity is associated with

the property of concavity for the respective deviation measure. As a consequence of items 1 and 2,

we show in item 3 that convexity on both A and A∁ is associated with deviation measures that are

convex and concave and, therefore, additive. This result relates directly to our main result regarding

comonotonic additive deviation measures (Theorem 4, item 1). The fourth item of the above theorem

is the converse of the third, showing that AD and A∁D are both convex in the domain where D is

additive.

We are now in a position to prove the main result in this section.

Theorem 4. We have the following:

1. Consider an acceptance set A ⊆ X being radially bounded at non-constants, stable under scalar

addition, and assume both A and A∁ be comonotonic convex. Then A is star-shaped and DA is

a comonotonic additive deviation measure.

2. Let D be a deviation measure that is comonotonic additive. Then both AD and A∁D are comono-

tonic convex.

The first item is the main contribution of Theorem 4. It directly implies that, if A is a comonotonic

convex Minkowski acceptance set (Definition 5) such that A∁ is also comonotonic convex, then the

deviation measure it induces, DA , is comonotonic additive. The property of comonotonic convexity

for a Minkowski acceptance set A, as well as for its complement, A∁ , has the same financial meaning as

for acceptance sets associated with risk measures. When imposed on A∁ , the property of comonotonic

convexity embodies the notion that diversification among comonotonic random variables brings no

benefits. This is due to the lack of hedging between comonotonic random variables. The property

of comonotonic convexity on A, on the other hand, is a weaker form of convexity than that required

in the seminal paper of Rockafellar et al. (2006), as well as in the handbook treatment presented in

Pflug (2006), or in the work of Moresco et al. (2023).

10
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Acknowledgements

The authors are grateful for the insightful comments of Marcelo Fernandes, Rodrigo S. Targino, and

Fernanda M. Müller.

This work was supported by the following funding sources:

• Samuel S. Santos thanks for the support from the Brazilian Coordination for the Improvement

of Higher Education Personnel (CAPES) under grant number 88882.439088/2019-01.

• Marlon R. Moresco has no funding sources to acknowledge.

• Marcelo B. Righi thanks for the support from the Brazilian National Council for Scientific and

Technological Development (CNPq) under grant number 302614/2021-4.

• Eduardo de O. Horta thanks for the support from the Brazilian National Council for Scientific

and Technological Development (CNPq) under grant number 438642/2018-0.

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