Robust and Practical Estimation for Measures of Tail Risk
50 Pages Posted: 2 Jun 2014
Date Written: June 1, 2014
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: Suggested Citation