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Median-Anchored Adjustment of Joint VaR--ES Forecasts

Author

Listed:
  • Tae-Hwy Lee

    (Department of Economics, University of California Riverside)

  • Dingli Wang

    (University of California, Riverside)

Abstract

Risk managers often work with a fitted forecasting model they cannot replace even when its tail forecasts need adjustment. We propose a median-anchored rule that multiplies the distances from the fitted median to Value-at-Risk (VaR) and Expected Shortfall (ES) by a common positive multiplier. The rule preserves VaR--ES ordering, and minimizing VaR check loss gives a closed-form weighted-quantile estimator. We establish consistency, give an asymptotic distribution under high-level conditions accounting for baseline estimation, and derive a VaR coverage-error bound at the forecast origin. When the same multiplier correctly adjusts both VaR and ES, the adjusted pair has lower conditional zero-homogeneous Fissler--Ziegel (FZ0) risk at that origin. Monte Carlo experiments examine this condition and several forms of misspecification. In rolling S&P~500 forecasts the adjustment lowers FZ0 loss in all four GARCH cells, each pairwise significant, with the largest and most robust gain, 10.4%, for Gaussian GARCH at the 1% tail; the 5% gains do not survive the most conservative family-wise adjustments. A quantile-regression baseline marks the boundary: when the fitted tail is already flexible, one multiplier adds little. Filtered historical simulation quantifies what standardized residuals and conditional scales add when available.

Suggested Citation

  • Tae-Hwy Lee & Dingli Wang, 2026. "Median-Anchored Adjustment of Joint VaR--ES Forecasts," Working Papers 202604, University of California at Riverside, Department of Economics.
  • Handle: RePEc:ucr:wpaper:202604
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    References listed on IDEAS

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