Shortfall deviation risk: an alternative for risk measurement

Marcelo Brutti Righi and Paulo Sergio Ceretta

Journal of Risk

Abstract: ABSTRACT We present the shortfall deviation risk (SDR): a risk measure that represents the expected loss that occurs with a certain probability penalized by the dispersion of results that are worse than such an expectation. SDR combines expected shortfall (ES) and shortfall deviation (SD), which we also introduce, contemplating two fundamental pillars of the risk concept (the probability of adverse events and the variability of an expectation) and considering extreme results. We demonstrate that SD is a generalized deviation measure, whereas SDR is a coherent risk measure. We achieve the dual representation of SDR, and we discuss issues such as its representation by a weighted ES, acceptance sets, convexity, continuity and the relationship with stochastic dominance. Examples using real and simulated data allow us to conclude that SDR offers greater protection in risk measurement than value-at-risk and ES, especially in times of significant turbulence in riskier scenarios.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/2476221/short ... for-risk-measurement (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ4:2476221

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().