On the extension property of dilatation monotone risk measures

Let $\mathcal{X}$ be a subset of $L^1$ that contains the space of simple random variables $\mathcal{L}$ and $ρ: \mathcal{X} \rightarrow (-\infty,\infty]$ a dilatation monotone functional with the Fatou property. In this note, we show that $ρ$ extends uniquely to a $σ(L^1,\mathcal{L})$ lower semicontinuous and dilatation monotone functional $\overlineρ: L^1 \rightarrow (-\infty,\infty]$. Moreover, $\overlineρ$ preserves monotonicity, (quasi)convexity, and cash-additivity of $ρ$. Our findings complement recent extension results for quasiconvex law-invariant functionals proved in [17,20]. As an application of our results, we show that transformed norm risk measures on Orlicz hearts admit a natural extension to $L^1$ that retains the robust representations obtained in [4,6].

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