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https://hdl.handle.net/2440/56975
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Type: | Journal article |
Title: | VaR and expected shortfall: A non-normal regime switching framework |
Author: | Elliott, R. Miao, H. |
Citation: | Quantitative Finance, 2009; 9(6):747-755 |
Publisher: | IOP Publishing Ltd. |
Issue Date: | 2009 |
ISSN: | 1469-7688 1469-7696 |
Statement of Responsibility: | Robert J. Elliott and Hong Miao |
Abstract: | We have developed a regime switching framework to compute the Value at Risk and Expected Shortfall measures. Although Value at Risk as a risk measure has been criticized by some researchers for lack of subadditivity, it is still a central tool in banking regulations and internal risk management in the finance industry. In contrast, Expected Shortfall is coherent and convex, so it is a better measure of risk than Value at Risk. Expected Shortfall is widely used in the insurance industry and has the potential to replace Value at Risk as a standard risk measure in the near future. We have proposed regime switching models to measure value at risk and expected shortfall for a single financial asset as well as financial portfolios. Our models capture the volatility clustering phenomenon and variance-independent variation in the higher moments by assuming the returns follow Student-t distributions. |
Keywords: | Asset pricing Capital structure Corporate finance Copulas |
DOI: | 10.1080/14697680902849320 |
Published version: | http://dx.doi.org/10.1080/14697680902849320 |
Appears in Collections: | Aurora harvest 5 Mathematical Sciences publications |
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