Representation of concave distortions and applications

Research output: Contribution to journalArticleResearch

Abstract

© 2019, © 2019 Informa UK Limited, trading as Taylor & Francis Group. A family of concave distortion functions is a set of concave and increasing functions, mapping the unity interval onto itself. Distortion functions play an important role defining coherent risk measures. We prove that any family of distortion functions which fulfils a certain translation equation, can be represented by a distribution function. An application can be found in actuarial science: moment-based premium principles are easy to understand but in general are not monotone and cannot be used to compare the riskiness of different insurance contracts with each other. Our representation theorem makes it possible to compare two insurance risks with each other consistent with a moment-based premium principle by defining an appropriate coherent risk measure.
Original languageEnglish
Pages (from-to)768-783
JournalScandinavian Actuarial Journal
Volume2019
DOIs
Publication statusPublished - 21 Oct 2019

Keywords

  • coherent risk measure
  • log-concavity
  • premium principle
  • Representation of distortion functions
  • WANG-transform

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