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A Structure for General and Specific Market Risk


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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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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
Date of revision:
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 & Muromachi, Yukio, 2008. "An extension of the Wang transform derived from B├╝hlmann's economic premium principle for insurance risk," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 887-896, June.
  3. 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.
  4. Eckhard Platen, 2005. "On the Role of the Growth Optimal Portfolio in Finance," Research Paper Series 144, Quantitative Finance Research Centre, University of Technology, Sydney.
  5. Eckhard Platen & Wolfgang Runggaldier, 2002. "A Benchmark Approach to Filtering in Finance," Research Paper Series 77, Quantitative Finance Research Centre, University of Technology, Sydney.
  6. Katja Ignatieva & Eckhard Platen & Renata Rendek, 2010. "Using Dynamic Copulae for Modeling Dependency in Currency Denominations of a Diversifed World Stock Index," Research Paper Series 284, Quantitative Finance Research Centre, University of Technology, Sydney.
  7. Eckhard Platen, 2004. "Diversified Portfolios with Jumps in a Benchmark Framework," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 1-22, March.
  8. Kevin Fergusson & Eckhard Platen, 2006. "On the Distributional Characterization of Daily Log-Returns of a World Stock Index," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(1), pages 19-38.
  9. 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.
  10. Inui, Koji & Kijima, Masaaki & Kitano, Atsushi, 2005. "VaR is subject to a significant positive bias," Statistics & Probability Letters, Elsevier, vol. 72(4), pages 299-311, May.


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