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Loss-Based Risk Measures

Author

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  • Rama Cont

    (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique, IEOR Dept - Industrial Engineering and Operations Research Department - Columbia University [New York])

  • Romain Deguest

    (EDHEC-Risk Institute - EDHEC - EDHEC Business School - UCL - Université catholique de Lille)

  • Xuedong He

    (IEOR Dept - Industrial Engineering and Operations Research Department - Columbia University [New York])

Abstract

Starting from the requirement that risk measures of financial portfolios should be based on their losses, not their gains, we define the notion of loss-based risk measure and study the properties of this class of risk measures. We characterize loss-based risk measures by a representation theorem and give examples of such risk measures. We then discuss the statistical robustness of estimators of loss-based risk measures: we provide a general criterion for qualitative robustness of risk estimators and compare this criterion with sensitivity analysis of estimators based on influence functions. Finally, we provide examples of statistically robust estimators for loss-based risk measures.

Suggested Citation

  • Rama Cont & Romain Deguest & Xuedong He, 2011. "Loss-Based Risk Measures," Working Papers hal-00629929, HAL.
    • Handle: RePEc:hal:wpaper:hal-00629929
    Note: View the original document on HAL open archive server: https://hal.science/hal-00629929
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    References listed on IDEAS

    as
    1. Frittelli, Marco & Rosazza Gianin, Emanuela, 2002. "Putting order in risk measures," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1473-1486, July.
    2. Robert Jarrow, 2002. "Put Option Premiums and Coherent Risk Measures," Mathematical Finance, Wiley Blackwell, vol. 12(2), pages 135-142, April.
    3. Carlo Acerbi, 2007. "Coherent measures of risk in everyday market practice," Quantitative Finance, Taylor & Francis Journals, vol. 7(4), pages 359-364.
    4. 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.
    5. Rama Cont & Romain Deguest & Giacomo Scandolo, 2010. "Robustness and sensitivity analysis of risk measurement procedures," Quantitative Finance, Taylor & Francis Journals, vol. 10(6), pages 593-606.
    6. Elyès Jouini & Walter Schachermayer & Nizar Touzi, 2006. "Law Invariant Risk Measures Have the Fatou Property," Post-Print halshs-00176522, HAL.
    7. repec:dau:papers:123456789/342 is not listed on IDEAS
    8. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
    9. Song, Yongsheng & Yan, Jia-An, 2009. "Risk measures with comonotonic subadditivity or convexity and respecting stochastic orders," Insurance: Mathematics and Economics, Elsevier, vol. 45(3), pages 459-465, December.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    More about this item

    Keywords

    risk measure; coherent risk measure; Fenchel-Legendre transform; Choquet capacity;
    All these keywords.

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