Advanced Search
MyIDEAS: Login to save this paper or follow this series

Risk Measurement and Management in a Crisis-Prone World

Contents:

Author Info

  • Wong, Woon K

    ()
    (Cardiff Business School)

  • Copeland, Laurence

    ()
    (Cardiff Business School)

Abstract

The current subprime crisis has prompted us to look again into the nature of risk at the tail of the distribution. In particular, we investigate the risk contribution of an asset, which has infrequent but huge losses, to a portfolio using two risk measures, namely Value-at-Risk (VaR) and Expected Shortfall (ES). While ES is found to measure the tail risk contribution effectively, VaR is consistent with intuition only if the underlying return distribution is well behaved. To facilitate the use of ES, we present a power function formula that can calculate accurately the critical values of the ES test statistic. This in turn enables us to derive a size-based multiplication factor for risk capital requirement.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://patrickminford.net/wp/E2008_14.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2008/14.

as in new window
Length: 27 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:cdf:wpaper:2008/14

Contact details of provider:
Postal: Aberconway Building, Colum Drive, CARDIFF, CF10 3EU
Phone: +44 (0) 29 20874417
Fax: +44 (0) 29 20874419
Web page: http://business.cardiff.ac.uk/research/academic-sections/economics/working-papers
More information through EDIRC

Related research

Keywords: Value-at-Risk; expected shortfall; tail risk contribution; saddle point technique; risk capital;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Dirk Tasche, 2002. "Expected Shortfall and Beyond," Papers cond-mat/0203558, arXiv.org, revised Oct 2002.
  2. GIOT, Pierre & LAURENT, Sébastien, 2001. "Value-at-risk for long and short trading positions," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2001022, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Vikas Agarwal, 2004. "Risks and Portfolio Decisions Involving Hedge Funds," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 17(1), pages 63-98.
  4. Suleyman Basak & Alex Shapiro, . "Value-at-Risk Based Risk Management: Optimal Policies and Asset Prices," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 06-99, Wharton School Rodney L. White Center for Financial Research.
  5. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  6. Kerkhof, Jeroen & Melenberg, Bertrand, 2004. "Backtesting for risk-based regulatory capital," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(8), pages 1845-1865, August.
  7. Wong, Woon K., 2008. "Backtesting trading risk of commercial banks using expected shortfall," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(7), pages 1404-1415, July.
  8. Philippe Jorion, 2000. "Risk management lessons from Long‐Term Capital Management," European Financial Management, European Financial Management Association, European Financial Management Association, vol. 6(3), pages 277-300.
  9. Jeremy Berkowitz & James O'Brien, 2002. "How Accurate Are Value-at-Risk Models at Commercial Banks?," Journal of Finance, American Finance Association, American Finance Association, vol. 57(3), pages 1093-1111, 06.
  10. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-24, Board of Governors of the Federal Reserve System (U.S.).
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:cdf:wpaper:2008/14. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bruce Webb).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.