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The quantum harmonic oscillator expected shortfall model

Author

Listed:
  • Vladimir M. Markovic
  • Nikola Radivojevic
  • Tatjana Ivanovic
  • Slobodan Radisic
  • Nenad Novakovic

Abstract

This paper presents a new Expected Shortfall (ES) model based on the Quantum Harmonic Oscillator (QHO). It is used to estimate market risk in banks and other financial institutions according to Basel III standard. Predictions of the model agree with the empirical data which displays deviations from normality. Using backtesting, it is shown that the model can be reliably used to assess market risk.

Suggested Citation

  • Vladimir M. Markovic & Nikola Radivojevic & Tatjana Ivanovic & Slobodan Radisic & Nenad Novakovic, 2023. "The quantum harmonic oscillator expected shortfall model," Estudios de Economia, University of Chile, Department of Economics, vol. 50(2 Year 20), pages 233-261, December.
    • Handle: RePEc:udc:esteco:v:50:y:2023:i:2:p:233-261
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    File URL: https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/73205/75090
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    More about this item

    Keywords

    Expected Shortfall; market risk; Basel III standard; stock returns; S&P index;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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