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Viewing Risk Measures as Information

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  • Dominique Gu/'egan
  • Wayne Tarrant

Abstract

Regulation and risk management in banks depend on underlying risk measures. In general this is the only purpose that is seen for risk measures. In this paper we suggest that the reporting of risk measures can be used to determine the loss distribution function for a financial entity. We demonstrate that a lack of sufficient information can lead to ambiguous risk situations. We give examples, showing the need for the reporting of multiple risk measures in order to determine a bank's loss distribution. We conclude by suggesting a regulatory requirement of multiple risk measures being reported by banks, giving specific recommendations.

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  • Dominique Gu/'egan & Wayne Tarrant, 2011. "Viewing Risk Measures as Information," Papers 1111.4417, arXiv.org.
  • Handle: RePEc:arx:papers:1111.4417
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    File URL: http://arxiv.org/pdf/1111.4417
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    References listed on IDEAS

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    1. Dominique Guegan & Bertrand Hassani, 2009. "A modified Panjer algorithm for operational risk capital calculations," PSE-Ecole d'économie de Paris (Postprint) halshs-00443846, HAL.
    2. Cyril Caillault, Dominique Guégan, 2009. "Forecasting VaR and Expected Shortfall Using Dynamical Systems: A Risk Management Strategy," Frontiers in Finance and Economics, SKEMA Business School, vol. 6(1), pages 26-50, April.
    3. Yamai, Yasuhiro & Yoshiba, Toshinao, 2002. "Comparative Analyses of Expected Shortfall and Value-at-Risk (3): Their Validity under Market Stress," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(3), pages 181-237, October.
    4. 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..
    5. Rockafellar, R. Tyrrell & Uryasev, Stanislav, 2002. "Conditional value-at-risk for general loss distributions," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1443-1471, July.
    6. René M. Stulz, 1996. "Rethinking Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 8-25, September.
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