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Measuring potential market risk

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Author Info
Bask, Mikael () (Bank of Finland Research)

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Abstract

The difference between market risk and potential market risk is emphasized and a measure of the latter risk is proposed. Specifically, it is argued that the spectrum of smooth Lyapunov exponents can be utilized in what we call (l, s2)-analysis, which is a method to monitor the aforementioned risk measures. The reason is that these exponents focus on the stability properties (l) of the stochastic dynamic system generating asset returns, while more traditional risk measures such as value-at-risk are concerned with the distribution of returns (s2).

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File URL: http://www.bof.fi/NR/rdonlyres/9D3BA4C4-126A-43A3-B898-995E8175A066/0/0720netti.pdf
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Publisher Info
Paper provided by Bank of Finland in its series Research Discussion Papers with number 20/2007.

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Length: 18 pages
Date of creation: 13 Nov 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_020

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: market risk; potential market risk; smooth Lyapunov exponents; stochastic dynamic system; value-at-risk;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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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.:
  1. Mayes, David G & Nieto, Maria J & Wall , Larry, 2007. "Multiple safety net regulators and agency problems in the EU: is Prompt Corrective Action a partial solution?," Research Discussion Papers 7/2007, Bank of Finland. [Downloadable!]
  2. Kilponen , Juha & Santavirta, Torsten, 2007. "When do R&D subsidies boost innovation? Revisiting the inverted U-shape," Research Discussion Papers 10/2007, Bank of Finland. [Downloadable!]
  3. Goderis, Benedikt & Marsh, Ian & Vall Castello , Judit & Wagner, Wolf, 2007. "Bank behaviour with access to credit risk transfer markets," Research Discussion Papers 4/2007, Bank of Finland. [Downloadable!]
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  4. Ravenna , Federico & Seppälä, Juha, 2007. "Monetary policy, expected inflation and inflation risk premia," Research Discussion Papers 18/2007, Bank of Finland. [Downloadable!]
  5. Bask, Mikael & Selander, Carina, 2007. "Robust Taylor rules in an open economy with heterogeneous expectations and least squares learning," Research Discussion Papers 6/2007, Bank of Finland. [Downloadable!]
  6. Bask, Mikael, 2007. "Long swings and chaos in the exchange rate in a DSGE model with a Taylor rule," Research Discussion Papers 19/2007, Bank of Finland. [Downloadable!]
  7. Kilponen, Juha & Leitemo, Kai, 2007. "Discretion and the transmission lags of monetary policy," Research Discussion Papers 8/2007, Bank of Finland. [Downloadable!]
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Cited by:
(explanations, 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.)

  1. Jokivuolle, Esa & Kilponen , Juha & Kuusi, Tero, 2007. "GDP at risk in a DSGE model: an application to banking sector stress testing," Research Discussion Papers 26/2007, Bank of Finland. [Downloadable!]
  2. Tervala, Juha, 2007. "The international transmission of monetary policy in a dollar pricing model," Research Discussion Papers 29/2007, Bank of Finland. [Downloadable!]
  3. Laakkonen, Helinä, 2007. "Exchange rate volatility, macro announcements and the choice of intraday seasonality filtering method," Research Discussion Papers 23/2007, Bank of Finland. [Downloadable!]
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