Higher moment coherent risk measures

Pavlo A. Krokhmal

Quantitative Finance, 2007, vol. 7, issue 4, 373-387

Abstract: The paper considers modelling of risk-averse preferences in stochastic programming problems using risk measures. We utilize the axiomatic foundation of coherent risk measures and deviation measures in order to develop simple representations that express risk measures via specially constructed stochastic programming problems. Using the developed representations, we introduce a new family of higher-moment coherent risk measures (HMCR), which includes, as a special case, the Conditional Value-at-Risk measure. It is demonstrated that the HMCR measures are compatible with the second order stochastic dominance and utility theory, can be efficiently implemented in stochastic optimization models, and perform well in portfolio optimization case studies.

Keywords: Risk measures; Stochastic programming; Stochastic dominance; Portfolio optimization (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (38)

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DOI: 10.1080/14697680701458307

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