Worst-Case Range Value-at-Risk with Partial Information

Abstract

In this paper, we study the worst-case scenarios of a general class of risk measures, the Range Value-at-Risk (RVaR), in single and aggregate risk models with given mean and variance, as well as symmetry and/or unimodality of each risk. For different types of partial information settings, sharp bounds for RVaR are obtained for single and aggregate risk models, together with the corresponding worst-case scenarios of marginal risks and the corresponding copula functions (dependence structure) among them. Different from the existing literature, the sharp bounds under different partial information settings in this paper are obtained via a unified method combining convex order and the recently developed notion of joint mixability. As particular cases, bounds for Value-at-Risk (VaR) and Tail Value-at-Risk (TVaR) are derived directly. Numerical examples are also provided to illustrate our results.

Keywords: model uncertainty, risk aggregation, Range Value-at-Risk, Value-at-Risk, Tail Value-at-Risk, convex order