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Multivariate risks and depth-trimmed regions

Ignacio Cascos Fernández and Ilya Molchanov

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: We describe a general framework for measuring risks, where the risk measure takes values in an abstract cone. It is shown that this approach naturally includes the classical risk measures and set-valued risk measures and yields a natural definition of vector-valued risk measures. Several main constructions of risk measures are described in this abstract axiomatic framework. It is shown that the concept of depth-trimmed (or central) regions from the multivariate statistics is closely related to the definition of risk measures. In particular, the halfspace trimming corresponds to the Value-at-Risk, while the zonoid trimming yields the expected shortfall. In the abstract framework, it is shown how to establish a both-ways correspondence between risk measures and depth-trimmed regions. It is also demonstrated how the lattice structure of the space of risk values influences this relationship.

Date: 2006-06
New Economics Papers: this item is included in nep-upt
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