After VAR: The Theory, Estimation, and Insurance Applications of Quantile-Based Risk Measures

37 Pages Posted: 30 May 2006

See all articles by Kevin Dowd

Kevin Dowd

Nottingham University Business School (NUBS)

David P. Blake

City University London - Cass Business School

Abstract

We discuss a number of quantile-based risk measures (QBRMs) that have recently been developed in the financial risk and actuarial/insurance literatures. The measures considered include the Value-at-Risk (VaR), coherent risk measures, spectral risk measures, and distortion risk measures. We discuss and compare the properties of these different measures, and point out that the VaR is seriously flawed. We then discuss how QBRMs can be estimated, and discuss some of the many ways they might be applied to insurance risk problems. These applications are typically very complex, and this complexity means that the most appropriate estimation method will often be some form of stochastic simulation.

Suggested Citation

Dowd, Kevin and Blake, David P., After VAR: The Theory, Estimation, and Insurance Applications of Quantile-Based Risk Measures. Journal of Risk & Insurance, Vol. 73, No. 2, pp. 193-229, June 2006. Available at SSRN: https://ssrn.com/abstract=904898 or http://dx.doi.org/10.1111/j.1539-6975.2006.00171.x

Kevin Dowd (Contact Author)

Nottingham University Business School (NUBS) ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom

David P. Blake

City University London - Cass Business School ( email )

London, EC2Y 8HB
Great Britain
+44 (0) 20-7040-5143 (Phone)
+44 (0) 20-7040-8881 (Fax)

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