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Testing expected shortfall models for derivative positions

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Author Info
Kerkhof, J.
Melenberg, B.
Schumacher, H. (Tilburg University, Center for Economic Research)

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

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

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Related research
Keywords: derivatives;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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References listed on IDEAS
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  1. Newey, Whitney K & West, Kenneth D, 1987. "A Simple, Positive Semi-definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix," Econometrica, Econometric Society, vol. 55(3), pages 703-08, May. [Downloadable!] (restricted)
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  2. Christoffersen, Peter & Hahn, Jinyong & Inoue, Atsushi, 2001. "Testing and comparing Value-at-Risk measures," Journal of Empirical Finance, Elsevier, vol. 8(3), pages 325-342, July. [Downloadable!] (restricted)
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  3. Kerkhof, J. & Melenberg, B., 2002. "Backtesting for risk-based regulatory capital," Discussion Paper 110, Tilburg University, Center for Economic Research. [Downloadable!]
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  4. Boyle, Phelim P. & Emanuel, David, 1980. "Discretely adjusted option hedges," Journal of Financial Economics, Elsevier, vol. 8(3), pages 259-282, September. [Downloadable!] (restricted)
  5. Garman, Mark B. & Kohlhagen, Steven W., 1983. "Foreign currency option values," Journal of International Money and Finance, Elsevier, vol. 2(3), pages 231-237, December. [Downloadable!] (restricted)
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