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After VaR: The Theory, Estimation, and Insurance Applications of Quantile-Based Risk Measures

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  • Kevin Dowd
  • David Blake

Abstract

We discuss a number of quantile-based risk measures (QBRMs) that have recently been developed in the financial risk and actuarial/insurance literatures. The measures considered include the Value-at-Risk (VaR), coherent risk measures, spectral risk measures, and distortion risk measures. We discuss and compare the properties of these different measures, and point out that the VaR is seriously flawed. We then discuss how QBRMs can be estimated, and discuss some of the many ways they might be applied to insurance risk problems. These applications are typically very complex, and this complexity means that the most appropriate estimation method will often be some form of stochastic simulation. Copyright The Journal of Risk and Insurance, 2006.

Suggested Citation

  • Kevin Dowd & David Blake, 2006. "After VaR: The Theory, Estimation, and Insurance Applications of Quantile-Based Risk Measures," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(2), pages 193-229.
  • Handle: RePEc:bla:jrinsu:v:73:y:2006:i:2:p:193-229
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    1. Goovaerts, Marc J. & Kaas, Rob & Dhaene, Jan & Tang, Qihe, 2003. "A Unified Approach to Generate Risk Measures," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 33(02), pages 173-191, November.
    2. Kato, Toshiyasu & Yoshiba, Toshinao, 2000. "Model Risk and Its Control," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 18(2), pages 129-157, December.
    3. Tripp, Michael Howard & Bradley, H. L. & Devitt, R. & Orros, G. C. & Overton, G. L. & Pryor, L. M. & Shaw, R. A., 2004. "Quantifying Operational Risk in General Insurance Companies. Developed by a Giro Working Party," British Actuarial Journal, Cambridge University Press, vol. 10(05), pages 919-1012, December.
    4. Con Keating & Hyun Song Shin & Charles Goodhart & Jon Danielsson, 2001. "An Academic Response to Basel II," FMG Special Papers sp130, Financial Markets Group.
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