Properties of Risk Measures
Free SOA Exam FAM (Fundamentals of Actuarial Mathematics) lesson in Severity, Frequency, and Aggregate Models. 10 min read, ~1,455 words.
Coherent = 4 properties: translation invariance, positive homogeneity, subadditivity, monotonicity. VaR fails subadditivity: not coherent. Satisfies the other three. TVaR satisfies all four: coherent. Subadditivity:, diversification cannot increase risk. VaR is subadditive for jointly normal (elliptical) distributions.
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- 2n
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