On Coherent Risk Measures Induced by Convex Risk Measures

Zhiping Chen () and Qianhui Hu ()
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Zhiping Chen: Xi’an Jiaotong University
Qianhui Hu: Xi’an Jiaotong University

Methodology and Computing in Applied Probability, 2018, vol. 20, issue 2, 673-698

Abstract: Abstract We study the close relationship between coherent risk measures and convex risk measures. Inspired by the obtained results, we propose a class of coherent risk measures induced by convex risk measures. The robust representation and minimization problem of the induced coherent risk measure are investigated. A new coherent risk measure, the Entropic Conditional Value-at-Risk (ECVaR), is proposed as a special case. We show how to apply the induced coherent risk measure to realistic portfolio selection problems. Finally, by comparing its out-of-sample performance with that of CVaR, entropic risk measure, as well as entropic value-at-risk, we carry out a series of empirical tests to demonstrate the practicality and superiority of the ECVaR measure in optimal portfolio selection.

Keywords: Coherent risk measure; Convex risk measure; Entropic conditional value-at-risk; Robust representation; Portfolio selection; 62P05; 91B30; 91B28 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s11009-017-9584-1

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