Journal
APPLIED MATHEMATICS LETTERS
Volume 27, Issue -, Pages 85-89Publisher
PERGAMON-ELSEVIER SCIENCE LTD
DOI: 10.1016/j.aml.2013.07.007
Keywords
Distortion measure; Copula functions; Systemic risk; Contagion
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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.
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