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Moment based approaches to value the risk of contingent claim portfolios

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  • Gaetano Iaquinta
  • Fabio Lamantia
  • Ivar Massabò
  • Sergio Ortobelli

Abstract

In this paper we describe and apply the estimating function methodology to value the risk of asset derivative portfolios. We first implement the Li’s model based on the first four moments and then we show the limits of this model in forecasting the maximum loss of contingent claims. In addition, we show that four moments are not enough to describe the behavior of the lower percentiles of derivatives. Finally, we propose a model that considers the first six moments and we compare the performances of these models proposing a backtest analysis on several historical and truncated asset derivative portfolios. Copyright Springer Science+Business Media, LLC 2009

Suggested Citation

  • Gaetano Iaquinta & Fabio Lamantia & Ivar Massabò & Sergio Ortobelli, 2009. "Moment based approaches to value the risk of contingent claim portfolios," Annals of Operations Research, Springer, vol. 165(1), pages 97-121, January.
    • Handle: RePEc:spr:annopr:v:165:y:2009:i:1:p:97-121:10.1007/s10479-007-0306-x
    DOI: 10.1007/s10479-007-0306-x
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    References listed on IDEAS

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    1. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
    2. Li, David X & Turtle, H J, 2000. "Semiparametric ARCH Models: An Estimating Function Approach," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(2), pages 174-186, April.
    3. Crowder, Martin, 1986. "On Consistency and Inconsistency of Estimating Equations," Econometric Theory, Cambridge University Press, vol. 2(3), pages 305-330, December.
    4. Benoit Mandelbrot, 1963. "New Methods in Statistical Economics," Journal of Political Economy, University of Chicago Press, vol. 71(5), pages 421-421.
    5. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
    6. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-862, November.
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    Cited by:

    1. Alexander Vinel & Pavlo A. Krokhmal, 2017. "Certainty equivalent measures of risk," Annals of Operations Research, Springer, vol. 249(1), pages 75-95, February.
    2. Stoyan Stoyanov & Svetlozar Rachev & Frank Fabozzi, 2013. "Sensitivity of portfolio VaR and CVaR to portfolio return characteristics," Annals of Operations Research, Springer, vol. 205(1), pages 169-187, May.

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