### Abstract

We introduce two subclasses of convex measures of risk, referred to as entropy coherent and entropy convex measures of risk. We prove that convex, entropy convex and entropy coherent measures of risk emerge as certainty equivalents under variational, homothetic and multiple priors preferences, respectively, upon requiring the certainty equivalents to be translation invariant. In addition, we study the properties of entropy coherent and entropy convex measures of risk, derive their dual conjugate function, and prove their distribution invariant representation. Some financial applications and examples of entropy coherent and entropy convex measures of risk are also investigated.

Original language | English |
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Place of Publication | Tilburg |

Publisher | Econometrics |

Volume | 2011-031 |

Publication status | Published - 2011 |

### Publication series

Name | CentER Discussion Paper |
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Volume | 2011-031 |

### Keywords

- Multiple priors
- Variational and homothetic preferences
- Robustness
- Convex risk measures
- Exponential utility
- Relative entropy
- Translation invariance
- Convexity
- Indifference valuation

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## Cite this

Laeven, R. J. A., & Stadje, M. A. (2011).

*Entropy Coherent and Entropy Convex Measures of Risk*. (CentER Discussion Paper; Vol. 2011-031). Econometrics.