Horizon Problems and Extreme Events in Financial Risk Management

Economic Policy Review, Vol. 4, No. 3, October 1998

Wharton Financial Institutions Center 98-16

10 Pages Posted: 10 Feb 1999  

Peter Christoffersen

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

Francis X. Diebold

University of Pennsylvania - The Ronald O. Perelman Center for Political Science and Economics (PCPSE); National Bureau of Economic Research (NBER)

Til Schuermann

Oliver Wyman

Date Written: April 1998

Abstract

Is volatility forecastability important for long-horizon risk management, or is a traditional constant-volatility assumption adequate? In this paper, the authors address this question, exploring the interface between long-horizon financial risk management and long-horizon volatility forecastability and, in particular, whether long-horizon volatility is forecastable enough such that volatility models are useful for long-horizon risk management.

Keywords: capital regulation

JEL Classification: G2, G3

Suggested Citation

Christoffersen, Peter and Diebold, Francis X. and Schuermann, Til, Horizon Problems and Extreme Events in Financial Risk Management (April 1998). Economic Policy Review, Vol. 4, No. 3, October 1998; Wharton Financial Institutions Center 98-16. Available at SSRN: https://ssrn.com/abstract=145167 or http://dx.doi.org/10.2139/ssrn.145167

Peter Christoffersen (Contact Author)

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

University of Pennsylvania - The Ronald O. Perelman Center for Political Science and Economics (PCPSE) ( email )

133 South 36th Street
Philadelphia, PA 19104-6297
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

Til Schuermann

Oliver Wyman ( email )

1166 6th Avenue
New York City, NY
United States

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