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Value at Risk and Expected Shortfall for large portfolios

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  • Lönnbark, Carl
  • Holmberg, Ulf
  • Brännäs, Kurt

Abstract

We argue that the practise of valuing the portfolio is important for the calculation of the Value at Risk and the Expected Shortfall. In particular, the seller (buyer) of an asset does not face a horizontal demand (supply) curve. We propose a new approach for incorporating this fact into the risk measures and in an empirical illustration we compare it to a competing approach. We find substantial differences.

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File URL: http://www.sciencedirect.com/science/article/pii/S1544612310000553
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Bibliographic Info

Article provided by Elsevier in its journal Finance Research Letters.

Volume (Year): 8 (2011)
Issue (Month): 2 (June)
Pages: 59-68

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Handle: RePEc:eee:finlet:v:8:y:2011:i:2:p:59-68

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Web page: http://www.elsevier.com/locate/frl

Related research

Keywords: Demand Supply Liquidity risk Limit order book Bank Sweden;

References

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  1. Turan G. Bali & Panayiotis Theodossiou, 2008. "Risk Measurement Performance of Alternative Distribution Functions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(2), pages 411-437.
  2. Dionne, Georges & Duchesne, Pierre & Pacurar, Maria, 2009. "Intraday Value at Risk (IVaR) using tick-by-tick data with application to the Toronto Stock Exchange," Journal of Empirical Finance, Elsevier, vol. 16(5), pages 777-792, December.
  3. Pierre Giot & Joachim Grammig, 2002. "How large is liquidity risk in an automated auction market?," University of St. Gallen Department of Economics working paper series 2002 2002-23, Department of Economics, University of St. Gallen.
  4. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
  5. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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