On Risk Management Problems Related to a Coherence Property

Tunaru, Radu and Fabozzi, Frank J. (2006) On Risk Management Problems Related to a Coherence Property. Quantitative Finance, 6 (1). pp. 75-81. ISSN 1469-7688 . (The full text of this publication is not currently available from this repository. You may be able to access a copy if URLs are provided)

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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.

Item Type: Article
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: 10 Jun 2014 10:55
Resource URI: https://kar.kent.ac.uk/id/eprint/25104 (The current URI for this page, for reference purposes)
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