Measuring potential market risk
AbstractWe argue herein that there is a fundamental and an important difference between the market risk and the potential market risk in financial markets. We also argue that the spectrum of smooth Lyapunov exponents can be used in ([lambda],[sigma]2)-analysis, which is a method to measure and monitor these risks. The reason is that these exponents focus on the stability properties ([lambda]) of the stochastic dynamic system generating asset returns, while more traditional risk measures such as value-at-risk are concerned with the distribution of asset returns ([sigma]2).
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Stability.
Volume (Year): 6 (2010)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jfstabil
Market risk Potential market risk Smooth Lyapunov exponents Stochastic dynamic system;
Other versions of this item:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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