Spectral risk measures : properties and limitations

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Title: Spectral risk measures : properties and limitations
Authors: Dowd, Kevin
Cotter, John
Sorwar, Ghulam
Permanent link: http://hdl.handle.net/10197/1190
Date: 18-Apr-2008
Online since: 2009-06-15T15:32:54Z
Abstract: Spectral risk measures (SRMs) are risk measures that take account of user risk aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.
Funding Details: Economic and Social Research Council; University College Dublin. School of Business
Type of material: Working Paper
Publisher: University College Dublin. School of Business. Centre for Financial Markets
University College Dublin. School of Business
Series/Report no.: Centre for Financial Markets working paper series; WP-08-05; UCD Business Schools Working Paper Series; WP08/14
Copyright (published version): 2008, Centre for Financial Markets
Keywords: Coherent risk measuresSpectral risk measuresExponential utilityPower utility
Subject LCSH: Risk--Econometric models
Utility theory--Mathematical models
Other versions: http://www.ucd.ie/bankingfinance/docs/wp/WP-08-05.pdf
Language: en
Status of Item: Not peer reviewed
Appears in Collections:Centre for Financial Markets Working Papers

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