Measuring Event Risk

Posted: 26 Aug 2008 Last revised: 13 Apr 2016

See all articles by Peter M. Nyberg

Peter M. Nyberg

Aalto University

Anders Vilhelmsson

Lund University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 25, 2008


This paper decomposes the popular risk measure Value-at-Risk (VaR) into one jump and one continuous component. The continuous component corresponds to general market risk and the jump component is proportional to the event risk as defined in the Basel II accord. We find that event risk, which is currently not incorporated into most banks' VaR models, comprises a substantial part of total VaR. It constitutes around 1/3 of the risk for a portfolio of small cap stocks but only 1% for a portfolio of large cap stocks. The national supervising agency in each membership country is advised by the Basel rules to add an additional capital charge to a bank whose models do not capture event risk. The large variation in event risk, which we also find across 10 individual stocks, suggests that an approach that varies the capital surcharge, based on the type of asset, should be used by the supervisors.

Keywords: Value-at-Risk, Event Risk, NIG distribution, Jumps

JEL Classification: G21, G28, C22

Suggested Citation

Nyberg, Peter Mikael and Vilhelmsson, Anders, Measuring Event Risk (August 25, 2008). Journal of Financial Econometrics, Forthcoming, Available at SSRN:

Peter Mikael Nyberg

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

Anders Vilhelmsson (Contact Author)

Lund University - Department of Economics ( email )


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