A Refined Measure of Conditional Maximum Drawdown

16 Pages Posted: 11 Mar 2019 Last revised: 1 Aug 2019

See all articles by Damiano Rossello

Damiano Rossello

Department of Economics and Business

Silvestro Lo Cascio

University of Catania - Department of Economics and Business

Date Written: July 31, 2019

Abstract

Risks associated to maximum drawdown have been recently formalized as the tail mean of the maximum drawdown distribution, called Conditional Expected Drawdown (CED). In fact, the special case of average maximum drawdown is widely used in the fund management industry also in association to performance management. It lacks relevant information on worst case scenarios over a fixed horizon. Formulating a refined version of CED, we are able to add this piece of information to the risk measurement of drawdown, and then get a risk measure for processes that preserves all the good properties of CED but following more prudential regulatory and management assessments, also in term of marginal risk contribution attributed to factors. As a special application, we consider the conditioning information given by the all time minimum of cumulative returns.

Keywords: Intra-Horizon Risk; Risk Measures for Processes, Maximum Drawdown, Running Minimum, Conditional Risk measures, Systemic Risk

JEL Classification: C02, G11, G20

Suggested Citation

Rossello, Damiano and Lo Cascio, Silvestro, A Refined Measure of Conditional Maximum Drawdown (July 31, 2019). Available at SSRN: https://ssrn.com/abstract=3337828 or http://dx.doi.org/10.2139/ssrn.3337828

Damiano Rossello (Contact Author)

Department of Economics and Business ( email )

Corso Italia, 55
Catania, CT Catania 95128
Italy

HOME PAGE: http://www.dei.unict.it/

Silvestro Lo Cascio

University of Catania - Department of Economics and Business ( email )

Corso Italia, 55
Catania, CT Catania 95128
Italy

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