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Latent Perils: Stressed VaR, Elicitability, and Systemic Effects

In: Postmodern Portfolio Theory

Author

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  • James Ming Chen

    (Michigan State University)

Abstract

Model risk, as demonstrated by the gap between VaR and its corresponding values for expected shortfall, is hardly the only threat to proper financial risk assessment. Even if we have properly modeled risk, whether by engaging in thorough nonparametric VaR, by specifying the proper parameters in a more accurate parametric model of value at risk, or by substituting more conservative (and coherent) values for expected shortfall in place of VaR, we cannot eliminate the problem of straightforward mistakes in estimation.1 Despite considerable advances in computation, the “fat finger” persists, in typography and in finance.2

Suggested Citation

  • James Ming Chen, 2016. "Latent Perils: Stressed VaR, Elicitability, and Systemic Effects," Quantitative Perspectives on Behavioral Economics and Finance, in: Postmodern Portfolio Theory, chapter 0, pages 307-325, Palgrave Macmillan.
    • Handle: RePEc:pal:qpochp:978-1-137-54464-3_17
    DOI: 10.1057/978-1-137-54464-3_17
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