On a relationship between distorted and spectral risk measures

Henryk Gzyl (henryk.gzyl@iesa.edu.ve) and Silvia Mayoral (smayoral@unav.es)
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Silvia Mayoral: Universidad de Navarra

No 15/06, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: We study the relationship between two widely used risk measures, spectral measures and distortion risk measures. In both cases, the risk measure can be thought of as a re-weighting of some initial distribution. We prove that spectral risk measures are equivalent to distorted risk pricing measures, or equivalently, spectral risk functions are equivalent to distortion functions. Besides, we prove that distorted measures are absolutely continuous with respect to the original measure. This allows us to find a link between the risk measures based on relative entropy and spectral risk measures or measures based on distortion risk functions.

Keywords: Coherent risk measure; Distortion function; Spectral measures; risk aversion function.Spectral measu (search for similar items in EconPapers)
JEL-codes: J13 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2006-12-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming, Revista Economía Financiera

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Working Paper: On a relationship between distorted and spectral risk measures (2006)
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