Article ID: | iaor2013730 |
Volume: | 41 |
Issue: | 1 |
Start Page Number: | 47 |
End Page Number: | 53 |
Publication Date: | Jan 2013 |
Journal: | Operations Research Letters |
Authors: | Staum Jeremy |
Keywords: | investment |
This paper introduces the axiom of excess invariance for risk measures, meaning insensitivity to the amount by which a portfolio’s value exceeds a benchmark. Using this axiom, the paper defines the class of shortfall risk measures. Shortfall risk measures are suitable for regulatory or risk management applications in which risk is associated with shortfall beneath a benchmark, whereas excess above the benchmark is not important.