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Equivalent Risk Indicators: VaR, TCE, and Beyond

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  • Silvia Faroni

    (EMLyon Business School, 23, Avenue Guy de Collongue, CEDEX, 69134 Ecully, France
    COACTIS (EA4161), Université de Lyon/Lyon 2, ISH, 14-16 Avenue Berthelot, 69007 Lyon, France)

  • Olivier Le Courtois

    (EMLyon Business School, 23, Avenue Guy de Collongue, CEDEX, 69134 Ecully, France)

  • Krzysztof Ostaszewski

    (College of Arts and Science, Illinois State University (ISU), Normal, IL 61790-4520, USA)

Abstract

While a lot of research concentrates on the respective merits of VaR and TCE, which are the two most classic risk indicators used by financial institutions, little has been written on the equivalence between such indicators. Further, TCE, despite its merits, may not be the most accurate indicator to take into account the nature of probability distribution tails. In this paper, we introduce a new risk indicator that extends TCE to take into account higher-order risks. We compare the quantiles of this indicator to the quantiles of VaR in a simple Pareto framework, and then in a generalized Pareto framework. We also examine equivalence results between the quantiles of high-order TCEs.

Suggested Citation

  • Silvia Faroni & Olivier Le Courtois & Krzysztof Ostaszewski, 2022. "Equivalent Risk Indicators: VaR, TCE, and Beyond," Risks, MDPI, vol. 10(8), pages 1-19, July.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:8:p:142-:d:868713
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    References listed on IDEAS

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    Cited by:

    1. Annamaria Olivieri, 2023. "Special Issue “Actuarial Mathematics and Risk Management”," Risks, MDPI, vol. 11(7), pages 1-3, July.

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