Extending Nearly-Linear Models

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Chiara Corsato, Renato Pelessoni, Paolo Vicig ;
Proceedings of the Eleventh International Symposium on Imprecise Probabilities: Theories and Applications, PMLR 103:82-90, 2019.

Abstract

Nearly-Linear Models are a family of neighbourhood models, obtaining lower/upper probabilities from a given probability by a linear affine transformation with barriers. They include a number of known models as special cases, among them the Pari-Mutuel Model, the $\varepsilon$-contamination model, the Total Variation Model and the vacuous lower/upper probabilities. We classified Nearly-Linear models, investigating their consistency properties, in previous work. Here we focus on how to extend those Nearly-Linear Models that are coherent or at least avoid sure loss. We derive formulae for their natural extensions, interpret a specific model as a natural extension itself of a certain class of lower probabilities, and supply a risk measurement interpretation for one of the natural extensions we compute.

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