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Behavioral approach to market and default risks modeling

Author

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  • Taguedong, Sylvain Chamberlain

Abstract

In this paper we discuss popular market and default risks modeling. We highlight some shortcomings. Then, we present the prospect and cumulative prospect theories. We discuss again the previous models under behavioral finance framework and get different results. Based on these results, we propose a new Value at Risk measure and make suggestions on other measures.

Suggested Citation

  • Taguedong, Sylvain Chamberlain, 2009. "Behavioral approach to market and default risks modeling," MPRA Paper 20641, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:20641
    as

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    File URL: https://mpra.ub.uni-muenchen.de/21897/1/MPRA_paper_21897.pdf
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    References listed on IDEAS

    as
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    2. Malcolm Baker & Jeffrey Wurgler, 2007. "Investor Sentiment in the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 129-152, Spring.
    3. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. "Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
    4. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    5. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
    6. Acerbi, Carlo & Tasche, Dirk, 2002. "On the coherence of expected shortfall," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1487-1503, July.
    7. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
    8. Benoit Mandelbrot & Adlai Fisher & Laurent Calvet, 1997. "A Multifractal Model of Asset Returns," Cowles Foundation Discussion Papers 1164, Cowles Foundation for Research in Economics, Yale University.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Noise Trading; Value at Risk; Probability of Default; Risk Measure Coherence; Risk Measure's Estimator Coherence;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G0 - Financial Economics - - General

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    This paper has been announced in the following NEP Reports:

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