Contagion-based distortion risk measures

We propose a class of distortion measures based on contagion from an external “scenario” variable. The dependence between the scenario and the variable whose risk is measured is modeled with a copula function with horizontal concave sections. Special cases are the perfect dependence copula, which ge...

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Bibliographic Details
Published inApplied mathematics letters Vol. 27; pp. 85 - 89
Main Authors Cherubini, Umberto, Mulinacci, Sabrina
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.01.2014
Subjects
Banks
Contagion
Copula functions
Distortion
Distortion measure
Horizontal
Liabilities
Mathematical analysis
Mathematical models
Risk
Systemic risk
Copula functions
Contagion
Distortion measure
Systemic risk
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Summary:We propose a class of distortion measures based on contagion from an external “scenario” variable. The dependence between the scenario and the variable whose risk is measured is modeled with a copula function with horizontal concave sections. Special cases are the perfect dependence copula, which generates expected shortfall, the Marshall–Olkin family and the Placket family. As an application, we evaluate distortion measures bank liabilities with respect to a country risk scenario in the current European debt crisis.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0893-9659
1873-5452
DOI:10.1016/j.aml.2013.07.007