Sensitivity Analysis of VaR Expected Shortfall for Portfolios Under Netting Agreements

Abstract

In this paper, we characterize explicitly the first derivative of the Value at Risk and the Expected Shortfall with respect to portfolio allocation when netting between positions exists. As a particular case, we examine a simple Gaussian example in order to illustrate the impact of netting agreements in credit risk management. We further provide nonpara-metric estimators for sensitivities and derive their asymptotic distributions. An empirical application on a typical banking portfolio is finally provided.Value at Risk, Expected Shortfall, Sensitivity, Risk Management, Credit Risk, Netting.