Document Type

Article

Publication Date

9-23-2014

Department

Department of Mathematical Sciences

Abstract

A spectrum of upper bounds (Qα(X ; p) αε[0,∞] on the (largest) (1-p)-quantile Q(X;p) of an arbitrary random variable X is introduced and shown to be stable and monotonic in α, p, and X , with Q0(X ;p) = Q(X;p). If p is small enough and the distribution of X is regular enough, then Qα(X ; p) is rather close to Q(X ; p). Moreover, these quantile bounds are coherent measures of risk. Furthermore, Qα(X ; p) is the optimal value in a certain minimization problem, the minimizers in which are described in detail. This allows of a comparatively easy incorporation of these bounds into more specialized optimization problems. In finance, Q0(X;p) and Q1(X ; p) are known as the value at risk (VaR) and the conditional value at risk (CVaR). The bounds Qα(X ; p) can also be used as measures of economic inequality. The spectrum parameter α plays the role of an index of sensitivity to risk. The problems of the effective computation of the bounds are considered. Various other related results are obtained.

Publisher's Statement

© 2014 by the author; licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution license (http://creativecommons.org/licenses/by/4.0/). Publisher’s version of record: https://doi.org/10.3390/risks2030349

Publication Title

Risks

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Version

Publisher's PDF

Included in

Mathematics Commons

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