Spectral Risk Measures with an Application to Futures Clearinghouse Variation Margin Requirements

Kevin Dowd and John Cotter
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Kevin Dowd: The University of Nottingham, UK

No 200742, Working Papers from Geary Institute, University College Dublin

Abstract: Spectral risk measures are attractive risk measures as they allow the user to obtain risk measures that reflect their risk-aversion functions. To date there has been very little guidance on the choice of risk-aversion functions underlying spectral risk measures. This paper addresses this issue by examining two popular risk aversion functions, based on exponential and power utility functions respectively. We find that the former yields spectral risk measures with nice intuitive properties, but the latter yields spectral risk measures that can have perverse properties. More work therefore needs to be done before we can be sure that arbitrary but respectable utility functions will always yield ‘well-behaved’ spectral risk measures.

Keywords: coherent risk measures; spectral risk measures; risk aversion functions (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2011-06-24
New Economics Papers: this item is included in nep-upt
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http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200742.pdf (application/pdf)

Related works:
Working Paper: Spectral Risk Measures with an Application to Futures Clearinghouse Variation Margin Requirements (2011)
Working Paper: Spectral Risk Measures with an Application to Futures Clearinghouse Variation Margin Requirements (2011)
Working Paper: Spectral Risk Measures with an Application to Futures Clearinghouse Variation Margin Requirements (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:ucd:wpaper:2007/42

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