Comparative Analyses of Expected Shortfall and Value-at-Risk (3): Their Validity under Market Stress
In this paper, we compare value-at-risk (VaR) and expected shortfall under market stress. Assuming that the multivariate extreme value distribution represents asset returns under market stress, we simulate asset returns with this distribution. With these simulated asset returns, we examine whether market stress affects the properties of VaR and expected shortfall. Our findings are as follows. First, VaR and expected shortfall may underestimate the risk of securities with fat- tailed properties and a high potential for large losses. Second, VaR and expected shortfall may both disregard the tail dependence of asset returns. Third, expected shortfall has less of a problem in disregarding the fat tails and the tail dependence than VaR does.
Volume (Year): 20 (2002)
Issue (Month): 3 (October)
|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:3:p:181-237. 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 references are entirely missing, you can add them using this form.