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

See all articles by Ric Colacito

Ric Colacito

University of North Carolina Kenan-Flagler Business School; NBER

Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

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Date Written: March 15, 2007

Abstract

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.

Suggested Citation

Colacito, Riccardo and Engle, Robert F., Term Structure of Risk, the Role of Known and Unknown Risks and Non-Stationary Distributions (March 15, 2007). THE KNOWN, THE UNKNOWN AND THE UNKNOWABLE IN FINANCIAL RISK MANAGEMENT, F.X. Diebold, ed., Forthcoming. Available at SSRN: https://ssrn.com/abstract=1267247

Riccardo Colacito (Contact Author)

University of North Carolina Kenan-Flagler Business School ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

HOME PAGE: http://drric.web.unc.edu/

NBER ( email )

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Robert F. Engle

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

New York University (NYU) - Department of Finance

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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