Risk contributions of lambda quantiles

DOI10.1080/14697688.2022.2092543MaRDI QIDQ5041667zbMATH OpenOpenAlexFDO

Authors A. Nejat Ince, Ilaria Peri, Silvana M. Pesenti

Publication date 14 October 2022

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2106.14824

zbMATH Keywords

capital allocationEuler allocationrisk contributionlambda quantileslambda value-at-risk

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70) Portfolio theory (91G10)

Abstract: Risk contributions of portfolios form an indispensable part of risk adjusted performance measurement. The risk contribution of a portfolio, e.g., in the Euler or Aumann-Shapley framework, is given by the partial derivatives of a risk measure applied to the portfolio profit and loss in direction of the asset units. For risk measures that are not positively homogeneous of degree 1, however, known capital allocation principles do not apply. We study the class of lambda quantile risk measures that includes the well-known Value-at-Risk as a special case but for which no known allocation rule is applicable. We prove differentiability and derive explicit formulae of the derivatives of lambda quantiles with respect to their portfolio composition, that is their risk contribution. For this purpose, we define lambda quantiles on the space of portfolio compositions and consider generic (also non-linear) portfolio operators. We further derive the Euler decomposition of lambda quantiles for generic portfolios and show that lambda quantiles are homogeneous in the space of portfolio compositions, with a homogeneity degree that depends on the portfolio composition and the lambda function. This result is in stark contrast to the positive homogeneity properties of risk measures defined on the space of random variables which admit a constant homogeneity degree. We introduce a generalised version of Euler contributions and Euler allocation rule, which are compatible with risk measures of any homogeneity degree and non-linear but homogeneous portfolios. These concepts are illustrated by a non-linear portfolio using financial market data.

Recommendations

• Risk capital allocation by coherent risk measures based on one-sided moments.
• Distortion measures and homogeneous financial derivatives
• scientific article; zbMATH DE number 2151372
• scientific article; zbMATH DE number 5051698
• AN AXIOMATIC APPROACH TO CAPITAL ALLOCATION

Cites work

• AN AXIOMATIC APPROACH TO CAPITAL ALLOCATION
• Capital allocation à la Aumann-Shapley for non-differentiable risk measures
• Coherent measures of risk
• Convex measures of risk and trading constraints
• Distortion measures and homogeneous financial derivatives
• Estimating quantile sensitivities
• Euler allocations in the presence of nonlinear reinsurance: comment on Major (2018)
• On the properties of the lambda value at risk: robustness, elicitability and consistency
• Probability
• Properties and comparison of risk capital allocation methods
• Risk measures on \(\mathcal{P}(\mathbb R)\) and value at risk with probability/loss function
• Short communication: An axiomatization of \(\Lambda\)-quantiles
• To split or not to split: Capital allocation with convex risk measures
• Values of Non-Atomic Games

Cited in

(6)

• Short communication: An axiomatization of \(\Lambda\)-quantiles
• Estimating the VaR-induced Euler allocation rule
• Risk contributions: duality and sensitivity
• Optimal risk sharing for lambda value-at-risk
• Robust -quantiles and extremal distributions
• Optimal insurance design with lambda-value-at-risk

Describes a project that uses

Uses Software

• KernSmooth

This page was built for publication: Risk contributions of lambda quantiles

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5041667)