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Spectral Risk Measures: Properties and Limitations

Kevin Dowd, John Cotter and Ghulam Sorwar
Additional contact information
Kevin Dowd: Centre for Risk and Insurance Studies, Nottingham University Business School
Ghulam Sorwar: Nottingham University Business School

No 200839, Working Papers from Geary Institute, University College Dublin

Abstract: Spectral risk measures (SRMs) are risk measures that take account of user risk-aversion, but to date there has been little guidance on the choice of utility function underlying them. This paper addresses this issue by examining alternative approaches based on exponential and power utility functions. A number of problems are identified with both types of spectral risk measure. The general lesson is that users of spectral risk measures must be careful to select utility functions that fit the features of the particular problems they are dealing with, and should be especially careful when using power SRMs.

Keywords: coherent risk measures; spectral risk measures; exponential utility; power utility (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2010-04-13
New Economics Papers: this item is included in nep-bec, nep-rmg and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (1)

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http://www.ucd.ie/geary/static/publications/workingpapers/gearywp200839.pdf First version, 2008 (application/pdf)

Related works:
Working Paper: Spectral Risk Measures: Properties and Limitations (2011) Downloads
Journal Article: Spectral Risk Measures: Properties and Limitations (2008) Downloads
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