Tail Risk and Pk-Tail Risk
29 Pages Posted: 22 Dec 2004
Date Written: December 2004
This paper discusses the notion of tail risk, and the ability of a tail risk measure to reflect this kind of risk. In particular, Yamai and Yoshiba's (2001, 2002) notion of strict risk measure tail risk is discussed and linked with a different notion of tail risk, the pK-tail risk, which is the risk associated with the probability measure conditional on the event that the losses are at least as large as K. A subset of pK-tail risk measures that are free of strict risk measure tail risk is introduced. These notions are then extended to Yaari's (1987) dual theory and the distorted risk measures framework.
Keywords: Tail risk, pK-tail risk, Yaari's dual theory, distorted risk measures, premium principles
JEL Classification: D81, G10, G22
Suggested Citation: Suggested Citation