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Determination of risk pricing measures from market prices of risk

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  • Gzyl, Henryk
  • Mayoral, Silvia

Abstract

A new insurance provider or a regulatory agency may be interested in determining a risk measure consistent with observed market prices of a collection of risks. Using a relationship between distorted coherent risk measures and spectral risk measures, we provide a method for reconstructing distortion functions from the observed prices of risk. The technique is based on an appropriate application of the method of maximum entropy in the mean, which builds upon the classical method of maximum entropy.

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Bibliographic Info

Article provided by Elsevier in its journal Insurance: Mathematics and Economics.

Volume (Year): 43 (2008)
Issue (Month): 3 (December)
Pages: 437-443

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Handle: RePEc:eee:insuma:v:43:y:2008:i:3:p:437-443

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Web page: http://www.elsevier.com/locate/inca/505554

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Keywords: Distortion function Spectral measures Risk aversion function Maximum entropy in the mean Inverse problems;

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Cited by:
  1. Gzyl, Henryk & Mayoral, Silvia, 2010. "A method for determining risk aversion functions from uncertain market prices of risk," Insurance: Mathematics and Economics, Elsevier, Elsevier, vol. 47(1), pages 84-89, August.

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