After VaR: The Theory, Estimation, and Insurance Applications of Quantile-based Risk Measures

by Kevin Dowd of Nottingham University, and
David Blake of Cass Business School

June 2006

Abstract: We discuss a number of quantile-based risk measures (QBRMs) that have recently been developed in the financial risk and actuarial/insurance literatures. The measures considered include the Value-at-Risk (VaR), coherent risk measures, spectral risk measures, and distortion risk measures. We discuss and compare the properties of these different measures, and point out that the VaR is seriously flawed. We then discuss how QBRMs can be estimated, and discuss some of the many ways they might be applied to insurance risk problems. These applications are typically very complex, and this complexity means that the most appropriate estimation method will often be some form of stochastic simulation.

Published in: Journal of Risk and Insurance, (June 2006), Vol. 73, No. 2, pp. 193-229.

Download paper (187K PDF) 39 pages