Robust and Practical Estimation for Measures of Tail Risk

50 Pages Posted: 2 Jun 2014

Date Written: June 1, 2014

Abstract

We describe characteristics of various risk measures (Value-at-Risk, Expected Shortfall, etc.) that are used to analyze and quantify the tail risk exposure, and discuss their relative strengths and weaknesses. Emphasis is placed on presenting and comparing methodologies to compute and backtest estimates for these risk measures, from a practical perspective.

We also consider the regulators' requirements regarding tail risk measures, especially in the framework provided by the most recent accords of the Basel Committee on Banking Regulation, known as Basel II, 2.5, and III.

Keywords: Value-at-risk, VaR, Expected Shortfall, Expectiles, backtesting, tail risk measure, historical simulation, Monte Carlo, Extreme Value Theory, Basel Accords, financial regulation

JEL Classification: C13, C14, C15, G15, G21, G28

Suggested Citation

Homescu, Cristian, Robust and Practical Estimation for Measures of Tail Risk (June 1, 2014). Available at SSRN: https://ssrn.com/abstract=2444381 or http://dx.doi.org/10.2139/ssrn.2444381

Cristian Homescu (Contact Author)

Independent ( email )

No Address Available
United States

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