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Monetary Measurement of Risk: A Critical Overview - Part II: Coherent Measures of Risk

10 Pages Posted: 13 Nov 2015  

Lionel Lecesne

University of Cergy-Pontoise

Andrea Roncoroni

ESSEC Business School

Date Written: April 28, 2014

Abstract

In Lecesne and Roncoroni (2013), we introduce the notion of monetary measure of risk borne by any financial claim. Our presentation moves from general definitions to concrete instances, including the benchmark measure Value-at-Risk (VaR). Part II develops a treatment of the class of coherent (monetary) measures of risk put forward by Artzner et al. (1999). Our goal is to illustrate the main features of this class of measures in light of application to practical cases. In this respect, we put our focus on the ambiguity of the term “coherent” and show that the connotation of consistency it naturally embeds is more an issue of lexical interpretation than actual meaning. As an example, we show that lack of subadditivity of VaR (which prevents from it to being a “coherent” measure of risk) is more a desirable property than a drawback, as is claimed in most of existing sources in the specialized literature.

Suggested Citation

Lecesne, Lionel and Roncoroni, Andrea, Monetary Measurement of Risk: A Critical Overview - Part II: Coherent Measures of Risk (April 28, 2014). Available at SSRN: https://ssrn.com/abstract=2689132 or http://dx.doi.org/10.2139/ssrn.2689132

Lionel Lecesne

University of Cergy-Pontoise

33 Boulevard du Port
Cergy, 95000
France

Andrea Roncoroni (Contact Author)

ESSEC Business School ( email )

Avenue Bernard Hirsch BP 50105
Cergy-Pontoise, 95021
France
+33 (0)1 34 43 32 39 (Phone)
+33 (0)1 34 43 30 01 (Fax)

HOME PAGE: http://www45.essec.edu/faculty/andrea-roncoroni

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