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On Coherent Risk Measures Induced by Convex Risk Measures

Author

Listed:
  • Zhiping Chen

    (Xi’an Jiaotong University)

  • Qianhui Hu

    (Xi’an Jiaotong University)

Abstract

We study the close relationship between coherent risk measures and convex risk measures. Inspired by the obtained results, we propose a class of coherent risk measures induced by convex risk measures. The robust representation and minimization problem of the induced coherent risk measure are investigated. A new coherent risk measure, the Entropic Conditional Value-at-Risk (ECVaR), is proposed as a special case. We show how to apply the induced coherent risk measure to realistic portfolio selection problems. Finally, by comparing its out-of-sample performance with that of CVaR, entropic risk measure, as well as entropic value-at-risk, we carry out a series of empirical tests to demonstrate the practicality and superiority of the ECVaR measure in optimal portfolio selection.

Suggested Citation

  • Zhiping Chen & Qianhui Hu, 2018. "On Coherent Risk Measures Induced by Convex Risk Measures," Methodology and Computing in Applied Probability, Springer, vol. 20(2), pages 673-698, June.
    • Handle: RePEc:spr:metcap:v:20:y:2018:i:2:d:10.1007_s11009-017-9584-1
    DOI: 10.1007/s11009-017-9584-1
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    References listed on IDEAS

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