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Exponential Spectral Risk Measures

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  • Kevin Dowd
  • John Cotter

Abstract

Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their subjective risk-aversion. This paper examines spectral risk measures based on an exponential utility function, and finds that these risk measures have nice intuitive properties. It also discusses how they can be estimated using numerical quadrature methods, and how confidence intervals for them can be estimated using a parametric bootstrap. Illustrative results suggest that estimated exponential spectral risk measures obtained using such methods are quite precise in the presence of normally distributed losses.

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  • Kevin Dowd & John Cotter, 2011. "Exponential Spectral Risk Measures," Papers 1103.5409, arXiv.org.
  • Handle: RePEc:arx:papers:1103.5409
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    File URL: http://arxiv.org/pdf/1103.5409
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    References listed on IDEAS

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    1. Acerbi, Carlo, 2002. "Spectral measures of risk: A coherent representation of subjective risk aversion," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1505-1518, July.
    2. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G0 - Financial Economics - - General

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