The Axiomatic Approach to Risk Measures for Capital Determination
Posted: 11 Dec 2015
Date Written: December 2015
The quantification of downside risk in terms of capital requirements is a key issue for both regulators and the financial industry. This review presents the axiomatic approach, which is based on monetary risk measures. These provide a unifying mathematical framework for the determination of capital requirements, for economic indices of riskiness, and for the analysis of preferences in the face of risk and Knightian uncertainty. In the special case of distribution-based risk measures, we review recent advances in characterizing their statistical properties such as elicitability and robustness.
Suggested Citation: Suggested Citation
Follmer, Hans and Weber, Stefan, The Axiomatic Approach to Risk Measures for Capital Determination (December 2015). Annual Review of Financial Economics, Vol. 7, pp. 301-337, 2015, Available at SSRN: https://ssrn.com/abstract=2702348 or http://dx.doi.org/10.1146/annurev-financial-111914-042031
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