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Quantifying and Correcting the Bias in Estimated Risk Measures

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  • Kim, Joseph Hyun Tae
  • Hardy, Mary R.

Abstract

In this paper we explore the bias in the estimation of the Value at Risk and Conditional Tail Expectation risk measures using Monte Carlo simulation. We assess the use of bootstrap techniques to correct the bias for a number of different examples. In the case of the Conditional Tail Expectation, we show that application of the exact bootstrap can improve estimates, and we develop a practical guideline for assessing when to use the exact bootstrap.

Suggested Citation

  • Kim, Joseph Hyun Tae & Hardy, Mary R., 2007. "Quantifying and Correcting the Bias in Estimated Risk Measures," ASTIN Bulletin, Cambridge University Press, vol. 37(2), pages 365-386, November.
    • Handle: RePEc:cup:astinb:v:37:y:2007:i:02:p:365-386_01
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    Cited by:

    1. Lauer, Alexandra & Zähle, Henryk, 2017. "Bootstrap consistency and bias correction in the nonparametric estimation of risk measures of collective risks," Insurance: Mathematics and Economics, Elsevier, vol. 74(C), pages 99-108.
    2. Michael Ludkovski & James Risk, 2017. "Sequential Design and Spatial Modeling for Portfolio Tail Risk Measurement," Papers 1710.05204, arXiv.org, revised May 2018.
    3. Russo, Ralph P. & Shyamalkumar, Nariankadu D., 2010. "Bounds for the bias of the empirical CTE," Insurance: Mathematics and Economics, Elsevier, vol. 47(3), pages 352-357, December.
    4. Kim, Joseph H.T., 2010. "Bias correction for estimated distortion risk measure using the bootstrap," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 198-205, October.
    5. Michael B. Gordy & Sandeep Juneja, 2010. "Nested Simulation in Portfolio Risk Measurement," Management Science, INFORMS, vol. 56(10), pages 1833-1848, October.
    6. Zhou, Xiaoping & Durfee, Antonina V. & Fabozzi, Frank J., 2016. "On stability of operational risk estimates by LDA: From causes to approaches," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 266-278.
    7. Gao, Huan & Mamon, Rogemar & Liu, Xiaoming, 2017. "Risk measurement of a guaranteed annuity option under a stochastic modelling framework," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 132(C), pages 100-119.

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