Methods for generating coherent distortion risk measures

Ranadeera G.M. Samanthi and Jungsywan Sepanski

Annals of Actuarial Science, 2019, vol. 13, issue 2, 400-416

Abstract: This paper presents methods for generating new distortion functions utilising distribution functions and composite distribution functions. To ensure the coherency of the corresponding distortion risk measures, the concavity of the proposed distortion functions is established by restricting the parameter space of the generating distribution. Closed-form expressions for risk measures are derived for some cases. Numerical and graphical results are presented to demonstrate the effects of parameter values on the risk measures for exponential, Pareto and log-normal losses. In addition, we apply the proposed distortion functions to derive risk measures for a segregated fund guarantee.

Date: 2019
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