Tunaru, R. and Fabozzi, F. (2006) On Risk Management Problems Related to a Coherence Property. Quantitative Finance, 6 (1). pp. 75-81. ISSN 1469-7688 .
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Value at Risk has lost the battle against Expected Shortfall on theoretical grounds, the latter satisfying all coherence properties while the former may, on carefully constructed cases, lack the sub-additivity property that is in a sense, the most important property a risk measure ought to satisfy. While the Superiority of Expected Shortfall is evident as a theoretical tool, little has been researched on the properties of estimators proposed in the literature. Since those estimators are the real tools for calculating bank capital reserves in practice, the natural question that one may ask is whether a given estimator of Expected Shortfall also satisfies the coherence properties. In this paper, we show that it is possible to have estimators of Expected Shortfall that do not satisfy the sub-additivity condition. This finding should motivate risk managers and quantitative asset managers to investigate further the properties of the estimators of the risk measures they are currently utilizing.
|Uncontrolled keywords:||coherent measures, expected shortfall, value-at-risk, estimation, model risk|
|Subjects:||H Social Sciences > H Social Sciences (General)|
|Divisions:||Faculties > Social Sciences > Kent Business School > Accounting and Finance|
|Depositing User:||Jennifer Knapp|
|Date Deposited:||19 Jul 2010 10:40|
|Last Modified:||19 Jul 2010 10:40|
|Resource URI:||http://kar.kent.ac.uk/id/eprint/25104 (The current URI for this page, for reference purposes)|
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