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Risk Measurement with Spectral Capital Allocation

In: Applied Quantitative Finance

Author

Listed:
  • Ludger Overbeck

    (Universität Gießen, Institut für Mathematik)

  • Maria Sokolova

    (Moscow State University)

Abstract

Spectral risk measures provide the framework to formulate the risk aversion of a firm specifically for each quantile of the loss distribution of a portfolio. More precisely the risk aversion is codified in a weight function, weighting each quantile. Since the basic coherent building blocks of spectral risk measures are expected shortfall measures, the most intuitive approach comes from combinations of those. For investment decisions the marginal risk or the capital allocation is the sensible approach. Since spectral risk measures are coherent there exists also a sensible capital allocation based on the notion of derivatives or more in the light of the coherency approach as an expectation under a generalized maximal scenario.

Suggested Citation

  • Ludger Overbeck & Maria Sokolova, 2009. "Risk Measurement with Spectral Capital Allocation," Springer Books, in: Wolfgang K. Härdle & Nikolaus Hautsch & Ludger Overbeck (ed.), Applied Quantitative Finance, edition 2, chapter 7, pages 139-159, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-69179-2_7
    DOI: 10.1007/978-3-540-69179-2_7
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