10.1080/14697680500467889

On risk management problems related to a coherence property

Abstract

Value at Risk has lost the battle against Expected Shortfall on theoretical grounds, the latter satisfying all coherence properties while the former may, on carefully constructed cases, lack the sub-additivity property that is in a sense, the most important property a risk measure ought to satisfy. While the superiority of Expected Shortfall is evident as a theoretical tool, little has been researched on the properties of estimators proposed in the literature. Since those estimators are the real tools for calculating bank capital reserves in practice, the natural question that one may ask is whether a given estimator of Expected Shortfall also satisfies the coherence properties. In this paper, we show that it is possible to have estimators of Expected Shortfall that do not satisfy the sub-additivity condition. This finding should motivate risk managers and quantitative asset managers to investigate further the properties of the estimators of the risk measures they are currently utilizing.Coherent measures, Expected shortfall, Value-at-risk, Estimation, Model risk,

Similar works

Full text

thumbnail-image

Research Papers in Economics

Provided original full text link
Last time updated on 7/6/2012

This paper was published in Research Papers in Economics.

Having an issue?

Is data on this page outdated, violates copyrights or anything else? Report the problem now and we will take corresponding actions after reviewing your request.