Sensitivity Analysis Using Risk Measures

Andreas Tsanakas and Pietro Millossovich

Risk Analysis, 2016, vol. 36, issue 1, 30-48

Abstract: In a quantitative model with uncertain inputs, the uncertainty of the output can be summarized by a risk measure. We propose a sensitivity analysis method based on derivatives of the output risk measure, in the direction of model inputs. This produces a global sensitivity measure, explicitly linking sensitivity and uncertainty analyses. We focus on the case of distortion risk measures, defined as weighted averages of output percentiles, and prove a representation of the sensitivity measure that can be evaluated on a Monte Carlo sample, as a weighted average of gradients over the input space. When the analytical model is unknown or hard to work with, nonparametric techniques are used for gradient estimation. This process is demonstrated through the example of a nonlinear insurance loss model. Furthermore, the proposed framework is extended in order to measure sensitivity to constant model parameters, uncertain statistical parameters, and random factors driving dependence between model inputs.

Date: 2016
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Citations: View citations in EconPapers (16)

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https://doi.org/10.1111/risa.12434

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Persistent link: https://EconPapers.repec.org/RePEc:wly:riskan:v:36:y:2016:i:1:p:30-48

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