- Distortion risk measures, ROC curves, and distortion divergence
- Number of pages
- Amsterdam: University of Amsterdam, section Quantitative Economics
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Distortion functions are employed to define measures of risk. Receiver operating characteristic (ROC) curves are used to describe the performance of parametrized test families in testing a simple null hypothesis against a simple alternative. This paper provides a connection between distortion functions on the one hand, and ROC curves on the other. This leads to a new interpretation of some well known classes of distortion risk measures, and to a new notion of divergence between probability measures.
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