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Determination of Risk Pricing Measures from Market Prices of Risk

  • Henryk Gzyl

    ()

    (Centro de Finanzas, IESA)

  • Silvia Mayoral

    ()

    (Universidad de Navarra)

A new insurance provider or a regulatory agency may be interested in determining a risk measure consistent with observed market prices of a collection of risks. Using a relationship between distorted coherent risk measures and spectral risk measures, we provide a method for reconstruction distortion functions from the observed prices of risk. The technique is based on an appropriate application of the method on maximum entropy in the mean.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random45ab5988c3bf2/1217957827_Determination_of_Risk_Measures.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 03/07.

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Length: 28 pages
Date of creation:
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Handle: RePEc:una:unccee:wp0307
Contact details of provider: Web page: http://www.unav.es/facultad/econom

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  1. Henryk Gzyl & Silvia Mayoral, . "On a relationship between distorted and spectral risk measures," Faculty Working Papers 15/06, School of Economics and Business Administration, University of Navarra.
  2. Goovaerts, Marc J. & Laeven, Roger J.A., 2008. "Actuarial risk measures for financial derivative pricing," Insurance: Mathematics and Economics, Elsevier, vol. 42(2), pages 540-547, April.
  3. Yacine Ait-Sahalia & Andrew W. Lo, 1995. "Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices," NBER Working Papers 5351, National Bureau of Economic Research, Inc.
  4. Goovaerts, Marc J. & Kaas, Rob & Laeven, Roger J.A. & Tang, Qihe, 2004. "A comonotonic image of independence for additive risk measures," Insurance: Mathematics and Economics, Elsevier, vol. 35(3), pages 581-594, December.
  5. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-51, October.
  6. David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
  7. J. Dhaene & R. J. A. Laeven & S. Vanduffel & G. Darkiewicz & M. J. Goovaerts, 2008. "Can a Coherent Risk Measure Be Too Subadditive?," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(2), pages 365-386.
  8. Bliss, Robert R. & Panigirtzoglou, Nikolaos, 2002. "Testing the stability of implied probability density functions," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 381-422, March.
  9. Hans Föllmer & Alexander Schied, 2002. "Convex measures of risk and trading constraints," Finance and Stochastics, Springer, vol. 6(4), pages 429-447.
  10. 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.
  11. Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. " Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-32, December.
  12. Stutzer, Michael, 1996. " A Simple Nonparametric Approach to Derivative Security Valuation," Journal of Finance, American Finance Association, vol. 51(5), pages 1633-52, December.
  13. Wang, Shaun S. & Young, Virginia R. & Panjer, Harry H., 1997. "Axiomatic characterization of insurance prices," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 173-183, November.
  14. Lynn Wirch, Julia & Hardy, Mary R., 1999. "A synthesis of risk measures for capital adequacy," Insurance: Mathematics and Economics, Elsevier, vol. 25(3), pages 337-347, December.
  15. Ritchey, Robert J, 1990. "Call Option Valuation for Discrete Normal Mixtures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 13(4), pages 285-96, Winter.
  16. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
  17. Tahir Choulli & Christophe Stricker, 2005. "Minimal Entropy-Hellinger Martingale Measure In Incomplete Markets," Mathematical Finance, Wiley Blackwell, vol. 15(3), pages 465-490.
  18. repec:dgr:uvatin:20040030 is not listed on IDEAS
  19. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  20. Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
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