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Quantitative Finance > Risk Management

Title: Spatial risk measures and rate of spatial diversification

Authors: Erwan Koch
Abstract: An accurate assessment of the risk of extreme environmental events is of great importance for populations, authorities and the banking/insurance industry. Koch (2017) introduced a notion of spatial risk measure and a corresponding set of axioms which are well suited to analyse the risk due to events having a spatial extent, precisely such as environmental phenomena. The axiom of asymptotic spatial homogeneity is of particular interest since it allows to quantify the rate of spatial diversification when the region under consideration becomes large. In this paper, we first investigate the general concepts of spatial risk measures and corresponding axioms further. Second, in the case of a general cost field, we especially give sufficient conditions such that spatial risk measures associated with expectation, variance, Value-at-Risk as well as expected shortfall and induced by this cost field satisfy the axioms of asymptotic spatial homogeneity of order 0, -2, -1 and -1, respectively. Last but not least, in the case where the cost field is a function of a max-stable random field, we mainly provide conditions on both the function and the max-stable field ensuring the latter properties. Max-stable random fields are relevant when assessing the risk of extreme events since they appear as a natural extension of multivariate extreme-value theory to the level of random fields. Overall, this paper improves our understanding of spatial risk measures as well as of their properties with respect to the space variable and generalises many results obtained in Koch (2017).
Subjects: Risk Management (q-fin.RM)
Cite as: arXiv:1803.07041 [q-fin.RM]
  (or arXiv:1803.07041v1 [q-fin.RM] for this version)

Submission history

From: Erwan Koch [view email]
[v1] Mon, 19 Mar 2018 17:11:01 GMT (21kb)