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A Structure for General and Specific Market Risk

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Abstract

The paper presents a consistent approach to the modeling of general and specific market risk as defined in regulatory documents. It compares the statistically based beta-factor model with a class of benckmark models that use a broadly based index as major building block for modeling. The investigation of log-return of stock prices that are expressed in units of the market index reveals that these are likely to be Student t distributed. A corresponding discrete time benchmark model is then used to calculate Value-at-Risk for equity portfolios.

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File URL: http://www.business.uts.edu.au/qfrc/research/research_papers/rp91.pdf
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Bibliographic Info

Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 91.

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Date of creation: 01 Feb 2003
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Handle: RePEc:uts:rpaper:91

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Keywords: risk measurement; general market risk; specific market risk; value at risk; financial modeling; benchmark model; growth optimal portfolio;

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Cited by:
  1. Eckhard Platen & Renata Rendek, 2007. "Empirical Evidence on Student-t Log-Returns of Diversified World Stock Indices," Research Paper Series 194, Quantitative Finance Research Centre, University of Technology, Sydney.
  2. Kijima, Masaaki & Motomiya, Shin-ichi & Suzuki, Yoichi, 2010. "Pricing of CDOs based on the multivariate Wang transform," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2245-2258, November.
  3. Eckhard Platen & Wolfgang Runggaldier, 2002. "A Benchmark Approach to Filtering in Finance," Research Paper Series 77, Quantitative Finance Research Centre, University of Technology, Sydney.
  4. Kevin Fergusson & Eckhard Platen, 2006. "On the Distributional Characterization of Daily Log-Returns of a World Stock Index," Applied Mathematical Finance, Taylor and Francis Journals, vol. 13(1), pages 19-38.
  5. Eckhard Platen, 2005. "On The Role Of The Growth Optimal Portfolio In Finance," Australian Economic Papers, Wiley Blackwell, vol. 44(4), pages 365-388, December.
  6. Kevin Fergusson & Eckhard Platen, 2005. "On the Distributional Characterization of Log-returns of a World Stock Index," Research Paper Series 153, Quantitative Finance Research Centre, University of Technology, Sydney.
  7. Kijima, Masaaki & Muromachi, Yukio, 2008. "An extension of the Wang transform derived from Bühlmann's economic premium principle for insurance risk," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 887-896, June.
  8. Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Research Paper Series 129, Quantitative Finance Research Centre, University of Technology, Sydney.

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