Risk Aversion and Coherent Risk Measures: a Spectral Representation Theorem
We study a space of coherent risk measures M_phi obtained as certain expansions of coherent elementary basis measures. In this space, the concept of ``Risk Aversion Function'' phi naturally arises as the spectral representation of each risk measure in a space of functions of confidence level probabilities. We give necessary and sufficient conditions on phi for M_phi to be a coherent measure. We find in this way a simple interpretation of the concept of coherence and a way to map any rational investor's subjective risk aversion onto a coherent measure and vice--versa. We also provide for these measures their discrete versions M_phi^N acting on finite sets of N independent realizations of a r.v. which are not only shown to be coherent measures for any fixed N, but also consistent estimators of M_phi for large N. Finally, we find in our results some interesting and not yet fully investigated relationships with certain results known in insurance mathematical literature.
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- Carlo Acerbi & Dirk Tasche, 2002. "Expected Shortfall: A Natural Coherent Alternative to Value at Risk," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 31(2), pages 379-388, 07.
- Acerbi, Carlo & Tasche, Dirk, 2002.
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Elsevier, vol. 26(7), pages 1487-1503, July.
- Carlo Acerbi & Dirk Tasche, 2001. "On the coherence of Expected Shortfall," Papers cond-mat/0104295, arXiv.org, revised May 2002.
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- Carlo Acerbi & Dirk Tasche, 2001. "Expected Shortfall: a natural coherent alternative to Value at Risk," Papers cond-mat/0105191, arXiv.org.
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