B0367
Title: An axiomatic foundation for the expected shortfall
Authors: Ruodu Wang - University of Waterloo (Canada)
Ricardas Zitikis - University of Western Ontario (Canada) [presenting]
Abstract: The Value-at-Risk (VaR) and the Expected Shortfall (ES) are the most popular risk measures used in banking and insurance regulation. According to the recent Basel Accords, ES has replaced VaR as the standard risk measure for market risk in the banking sector. VaR has been characterized in the literature with several sets of economic axioms, whereas ES, although being a most popular and coherent risk measure, does not yet have an axiomatic foundation. We shall put forward four intuitively attractive economic axioms that uniquely characterize ES. Key to the characterization are novel notions such as p-tail event and p-concentration, and we shall discuss them in detail.
