Regulatory Distortions and Alternatives

Abstract In this paper we introduce a new distortion risk measure that is motivated by the equivalence made by the regulator between the using the CVaR of 97.5 percent instead of VaR of 99 percent. We introduce a distortion function that matches the value of the normal quantiles with the same for CVaR. We also study this distortion and show it's convex and that it is more risk averse than Wang's distortion.