What attitudes to risk underlie distortion risk measure choices?

Jaume Belles-Sampera (), Montserrat Guillen and Miguel Santolino ()
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Jaume Belles-Sampera: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona
Miguel Santolino: Department of Econometrics, Riskcenter-IREA, Universitat de Barcelona

No 2015-05, Working Papers from Universitat de Barcelona, UB Riskcenter

Abstract: Understanding the attitude to risk implicit within a risk measure sheds some light on the way in which decision makers perceive losses. In this paper, a two-stage strategy is developed to characterize the underlying risk attitude involved in a risk evaluation, when executed by the family of distortion risk measures. First, we show that aggregation indicators defined for discrete Choquet integrals provide informa- tion about the implicit global risk attitude of the agent. Second, an analysis of the distortion function offers a local description of the agent's stance on risk in relation to the occurrence of accumulated losses. Here, the concepts of absolute risk attitude and local risk attitude arise naturally. An example is provided to illustrate the usefulness of this strategy for characterizing risk attitudes in an insurance company.

Keywords: Risk management; Risk tolerance; GlueVaR; Solvency II; Basel III. (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-05
New Economics Papers: this item is included in nep-rmg and nep-upt
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Citations: View citations in EconPapers (4)

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http://www.ub.edu/rfa/research/WP/UBriskcenterWP201505.pdf First version, 2015 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bak:wpaper:201505

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