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Weighted Nadaraya--Watson Estimation of Conditional Expected Shortfall

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  • Kengo Kato

Abstract

This paper addresses the problem of nonparametric estimation of the conditional expected shortfall (CES) that has gained popularity in financial risk management. We propose a new nonparametric estimator of the CES. The proposed estimator is defined as a conditional counterpart of the sample average estimator of the unconditional expected shortfall, where the empirical distribution function is replaced by the weighted Nadaraya--Watson estimator of the conditional distribution function. We establish asymptotic normality of the proposed estimator under an α-mixing condition. The asymptotic results reveal that the proposed estimator has a good bias property. Simulation results illustrate the usefulness of the proposed estimator. Copyright The Author 2012. Published by Oxford University Press. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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  • Kengo Kato, 2012. "Weighted Nadaraya--Watson Estimation of Conditional Expected Shortfall," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 10(2), pages 265-291, 2012 15.
  • Handle: RePEc:oup:jfinec:v:10:y:2012:i:2:p:265-291
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    File URL: http://hdl.handle.net/10.1093/jjfinec/nbs002
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    Cited by:

    1. Gery Geenens & Richard Dunn, 2017. "A nonparametric copula approach to conditional Value-at-Risk," Papers 1712.05527, arXiv.org.
    2. Rockafellar, R.T. & Royset, J.O. & Miranda, S.I., 2014. "Superquantile regression with applications to buffered reliability, uncertainty quantification, and conditional value-at-risk," European Journal of Operational Research, Elsevier, vol. 234(1), pages 140-154.
    3. PIERRET, Diane, 2013. "The systemic risk of energy markets," CORE Discussion Papers 2013018, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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