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Exponential spectral risk measures

Author

Listed:
  • 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.

Suggested Citation

  • Kevin Dowd & John Cotter, 2007. "Exponential spectral risk measures," Centre for Financial Markets Working Papers 10197/1195, Research Repository, University College Dublin.
    • Handle: RePEc:rru:cfmwps:10197/1195
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    File URL: http://hdl.handle.net/10197/1195
    File Function: First version, 2007
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    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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