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Testing Expected Shortfall Models for Derivative Positions

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  • Kerkhof, F.L.J.
  • Melenberg, B.
  • Schumacher, J.M.

    (Tilburg University, Center for Economic Research)

Abstract

In this paper we test several risk management models for computing expected shortfall for one-period hedge errors of hedged derivatives positions.Contrary to value-at-risk, expected shortfall cannot be tested using the standard binomial test, since we need information of the distribution in the tail.As derivatives positions change characteristics and thereby the size of risk exposures over time one cannot apply the standard tests based on stationarity.To overcome this problem, we present a transformation procedure.For comparison purposes the tests are also performed for value-at-risk.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2003-24.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200324

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Web page: http://center.uvt.nl

Related research

Keywords: testing; models; distribution; risk management; derivatives;

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