Methods for generating coherent distortion risk measures

Ranadeera G.M. Samanthi, Jungsywan Sepanski

Research output: Contribution to journalArticlepeer-review

Abstract

This paper presents methods for generating new distortion functions utilising distribution functions and composite distribution functions. To ensure the coherency of the corresponding distortion risk measures, the concavity of the proposed distortion functions is established by restricting the parameter space of the generating distribution. Closed-form expressions for risk measures are derived for some cases. Numerical and graphical results are presented to demonstrate the effects of parameter values on the risk measures for exponential, Pareto and log-normal losses. In addition, we apply the proposed distortion functions to derive risk measures for a segregated fund guarantee.

Original languageEnglish
Pages (from-to)400-416
Number of pages17
JournalAnnals of Actuarial Science
Volume13
Issue number2
DOIs
StatePublished - Sep 1 2019

Keywords

  • Distortion function
  • Exponential-exponential distortion
  • Kumaraswamy distortion
  • Risk measure
  • Truncated normal distortion

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