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Estimation and decomposition of downside risk for portfolios with non-normal returns

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  • Boudt, Kris
  • Peterson, B
  • Croux, Christophe
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    Abstract

    Modied Value at Risk (VaR) is an estimator of VaR based on the Cornish-Fisher expansion. It is fast to compute and reliable for non-normal returns. In this paper, we introduce modified Expected Shortfall as a new analytical estimator for Expected Shortfall (ES), another popular measure of downside risk. We give all the necessary formulas for computing portfolio modified VaR and ES and for decomposing these risk measures into the contributions made by each of the portfolio holdings. This new methodology is shown to be very useful for analyzing the risk properties of portfolios of alternative investments.

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    File URL: https://lirias.kuleuven.be/bitstream/123456789/175476/1/KBI_0730.pdf
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    Bibliographic Info

    Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/175476.

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    Date of creation: 2007
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    Handle: RePEc:ner:leuven:urn:hdl:123456789/175476

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    Web page: http://www.kuleuven.be

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    1. Jondeau, E. & Rockinger, M., 2004. "Optimal Portfolio Allocation Under Higher Moments," Working papers 108, Banque de France.
    2. Baillie, Richard T. & Bollerslev, Tim, 1992. "Prediction in dynamic models with time-dependent conditional variances," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 91-113.
    3. Keith Kuester & Stefan Mittnik & Marc S. Paolella, 2006. "Value-at-Risk Prediction: A Comparison of Alternative Strategies," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 53-89.
    4. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July.
    5. Pierre Giot and S»bastien Laurent, 2001. "Value-At-Risk For Long And Short Trading Positions," Computing in Economics and Finance 2001 94, Society for Computational Economics.
    6. Khan, Jafar A. & Van Aelst, Stefan & Zamar, Ruben H., 2007. "Robust Linear Model Selection Based on Least Angle Regression," Journal of the American Statistical Association, American Statistical Association, vol. 102, pages 1289-1299, December.
    7. Carlo Acerbi & Dirk Tasche, 2001. "Expected Shortfall: a natural coherent alternative to Value at Risk," Papers cond-mat/0105191, arXiv.org.
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    Cited by:
    1. Signori, Ombretta & Malongo, Hassan & Fermanian, Jean-David & Brière, Marie, 2012. "Volatility Strategies for Global and Country Specific European Investors," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/9298, Université Paris-Dauphine.

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