Spectral risk measures and the choice of risk aversion functior

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Title: Spectral risk measures and the choice of risk aversion functior
Authors: Dowd, Kevin
Cotter, John
Permanent link: http://hdl.handle.net/10197/1188
Date: 11-Mar-2007
Abstract: Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular risk aversion functions, based on exponential and power utility functions respectively. We find that the former yields spectral risk measures with nice intuitiveproperties, but the latter yields spectral risk measures that can have perverse properties. More work therefore needs to be done before we can be sure that arbitrary but respectable utility functions will always yield ‘well-behaved’ spectral risk measures.
Funding Details: Economic and Social Research Council; University College Dublin. School of
Type of material: Working Paper
Publisher: University College Dublin. School of Business. Centre for Financial Markets
Series/Report no.: Centre for Financial Markets working paper series; WP-07-20
Copyright (published version): 2007, Centre for Financial Markets
Keywords: Coherent risk measuresspectral risk measuresRisk aversion functions
Subject LCSH: Risk--Econometric models
International finance
Financial risk
Other versions: http://www.ucd.ie/bankingfinance/docs/wp/WP-07-20.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Centre for Financial Markets Working Papers

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