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http://ssrn.com/abstract=1955935
 
 

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Financial Risk Measurement for Financial Risk Management


Torben G. Andersen


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER); University of Aarhus - CREATES

Tim Bollerslev


Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Peter Christoffersen


University of Toronto - Rotman School of Management; Copenhagen Business School; University of Aarhus - CREATES

Francis X. Diebold


University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

November 2, 2011

PIER Working Paper No. 11-037

Abstract:     
Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfolio-level and asset-level analysis. Asset-level analysis is particularly challenging because the demands of real-world risk management in financial institutions - in particular, real-time risk tracking in very high-dimensional situations - impose strict limits on model complexity. Hence we stress powerful yet parsimonious models that are easily estimated. In addition, we emphasize the need for deeper understanding of the links between market risk and macroeconomic fundamentals, focusing primarily on links among equity return volatilities, real growth, and real growth volatilities. Throughout, we strive not only to deepen our scientific understanding of market risk, but also cross-fertilize the academic and practitioner communities, promoting improved market risk measurement technologies that draw on the best of both.

Number of Pages in PDF File: 130

Keywords: Market risk, volatility, GARCH

JEL Classification: C1, G1

working papers series


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Date posted: November 7, 2011  

Suggested Citation

Andersen, Torben G. and Bollerslev, Tim and Christoffersen, Peter and Diebold, Francis X., Financial Risk Measurement for Financial Risk Management (November 2, 2011). PIER Working Paper No. 11-037. Available at SSRN: http://ssrn.com/abstract=1955935 or http://dx.doi.org/10.2139/ssrn.1955935

Contact Information

Torben G. Andersen
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
University of Aarhus - CREATES ( email )
School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark
Tim Bollerslev
Duke University - Finance ( email )
Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)
Duke University - Department of Economics
Durham, NC 27708-0204
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Peter Christoffersen
University of Toronto - Rotman School of Management ( email )
105 St. George Street
Toronto, Ontario M5S 3E6 M5P 3C4
Canada
416-946-5511 (Phone)
HOME PAGE: http://www.christoffersen.com
Copenhagen Business School
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
University of Aarhus - CREATES
School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark
Francis X. Diebold (Contact Author)
University of Pennsylvania - Department of Economics ( email )
3718 Locust Walk
Philadelphia, PA 19104
United States
215-898-1507 (Phone)
215-573-4217 (Fax)
HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  231
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