On the Validity of Value-at-Risk: Comparative Analyses with Expected Shortfall
Value-at-risk (VaR) has become a standard measure used in financial risk management due to its conceptual simplicity, computational facility, and ready applicability. However, many authors claim that VaR has several conceptual problems. Artzner et al. (1997, 1999), for example, have cited the following shortcomings of VaR. (1) VaR measures only percentiles of profit-loss distributions, and thus disregards any loss beyond the VaR level ("tail risk"), and (2) VaR is not coherent since it is not sub-additive. To alleviate the problems inherent in VaR, the use of expected shortfall is proposed. In this paper, we provide an overview of studies comparing VaR and expected shortfall to draw practical implications for financial risk management. In particular, we illustrate how tail risk can bring serious practical problems in some cases.
Volume (Year): 20 (2002)
Issue (Month): 1 (January)
|Contact details of provider:|| Postal: |
Web page: http://www.imes.boj.or.jp/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ime:imemes:v:20:y:2002:i:1:p:57-85. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kinken)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.