Estimation and Decomposition of Downside Risk for Portfolios with Non-Normal Returns
Free University of Brussels (VUB); VU University Amsterdam
Brian G. Peterson
Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Catholic University of Leuven (KUL) - Department of Applied Economics
October 31, 2007
Journal of Risk, Vol. 11, No. 2, pp. 79-103, 2008
Modied Value at Risk (VaR) is an estimator of VaR based on the Cornish-Fisher expansion. It is fast to compute and reliable for non-normal returns. In this paper, we introduce modified Expected Shortfall as a new analytical estimator for Expected Shortfall (ES), another popular measure of downside risk. We give all the necessary formulas for computing portfolio modified VaR and ES and for decomposing these risk measures into the contributions made by each of the portfolio holdings. This new methodology is shown to be very useful for analyzing the risk properties of portfolios of alternative investments.
Number of Pages in PDF File: 33
Keywords: Customer lifetime value, Value, Companies, Order, Model, Product, Expected
JEL Classification: G1, G11, G14
Date posted: November 12, 2007 ; Last revised: March 4, 2012
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