Distortion Risk Measures, ROC Curves, and Distortion Divergence

21 Pages Posted: 22 Apr 2017 Last revised: 19 Oct 2017

See all articles by J. M. Schumacher

J. M. Schumacher

University of Amsterdam - Department of Quantitative Economics (KE)

Date Written: October 18, 2017

Abstract

Distortion functions are employed to define measures of risk. Receiver operating characteristic (ROC) curves are used to describe the performance of parametrized test families in testing a simple null hypothesis against a simple alternative. This paper provides a connection between distortion functions on the one hand, and ROC curves on the other. This leads to a new interpretation of some well known classes of distortion risk measures, and to a new notion of divergence between probability measures.

Keywords: distortion risk measures, hypothesis testing, receiver operating characteristic, divergence

JEL Classification: G22, C12

Suggested Citation

Schumacher, J.M. (Hans), Distortion Risk Measures, ROC Curves, and Distortion Divergence (October 18, 2017). Available at SSRN: https://ssrn.com/abstract=2956334 or http://dx.doi.org/10.2139/ssrn.2956334

J.M. (Hans) Schumacher (Contact Author)

University of Amsterdam - Department of Quantitative Economics (KE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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