Trade-Off between Robust Risk Measurement and Market Principles

18 Pages Posted: 9 May 2011 Last revised: 30 Sep 2011

Date Written: May 4, 2011

Abstract

Cont et al. recently showed that coherent risk measures are not robust with respect to changes in large data. In this paper we show that robust risk measures always generate pathological financial positions called "Good Deals". We also introduce the minimal distribution invariant modification of risk measures and study their robustness and sensitivity.

Keywords: Coherent Risk Measure, Good Deal, Risk Modification, Sensitivity Function

JEL Classification: C32, C02

Suggested Citation

Assa, Hirbod, Trade-Off between Robust Risk Measurement and Market Principles (May 4, 2011). Available at SSRN: https://ssrn.com/abstract=1831768 or http://dx.doi.org/10.2139/ssrn.1831768

Hirbod Assa (Contact Author)

University of Liverpool ( email )

Institute for Financial and Actuarial Mathematics,
Liverpool, L18 8BF
United Kingdom
447522173132 (Phone)

HOME PAGE: http://sites.google.com/site/assahirbod/

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