Term Structure of Risk, the Role of Known and Unknown Risks and Non-Stationary Distributions
THE KNOWN, THE UNKNOWN AND THE UNKNOWABLE IN FINANCIAL RISK MANAGEMENT, F.X. Diebold, ed., Forthcoming
25 Pages Posted: 14 Sep 2008
Date Written: March 15, 2007
In this paper we document the presence of a term structure of risk and we propose how to measure it using alternative models to forecast volatility and the Value at Risk at different horizons. We then quantify the benefits of an investor that is aware of the existence of a term structure of risk in the context of an asset allocation exercise.
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