Contagion-based distortion risk measures

We propose a class of distortion measures based on contagion from an external scenario variable. The dependence between the scenario and the variable whose risk is measured is modeled with a copula function with horizontal concave sections. Special cases are the perfect dependence copula, which generates expected shortfall, the Marshall-Olkin family and the Placket family. As an application, we evaluate distortion measures bank liabilities with respect to a country risk scenario in the current European debt crisis. (C) 2013 Elsevier Ltd. All rights reserved.