Representation of concave distortions and applications

Gero Junike

Scandinavian Actuarial Journal, 2019, vol. 2019, issue 9, 768-783

Abstract: A family of concave distortion functions is a set of concave and increasing functions, mapping the unity interval onto itself. Distortion functions play an important role defining coherent risk measures. We prove that any family of distortion functions which fulfils a certain translation equation, can be represented by a distribution function. An application can be found in actuarial science: moment-based premium principles are easy to understand but in general are not monotone and cannot be used to compare the riskiness of different insurance contracts with each other. Our representation theorem makes it possible to compare two insurance risks with each other consistent with a moment-based premium principle by defining an appropriate coherent risk measure.

Date: 2019
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DOI: 10.1080/03461238.2019.1615543

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