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Value at Risk Value at Risk, Expected ShorfallExpected Shortfall, and Other Risk Measures

In: Capital Market Finance

Author

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  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

The Value-at-Risk (VaR) concept was introduced by the American bank JP Morgan at the start of the 1990s to summarize the market risk impacting a portfolio or an assets-and-liabilities position in a single measure with a direct interpretation. The VaR quantifies, within a specified confidence level (typically 95 % or 99 %) the potential loss which could be sustained by a given isolated position, an entire portfolio, or a bank as a whole, in a short period of time (typically from 1 to 10 trading days) in normal market conditions. Whereas the VaR is merely a quantile of the distribution of losses (Sect. 27.1), calculating it may turn out to be complicated for positions that include many different instruments, among them derivatives (Sect. 27.2). Furthermore, the VaR has various shortcomings, and other indicators such as Expected Shortfall (Sect. 27.3) and risk measuring tools (Sect. 27.4) have been developed to overcome these deficiencies.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "Value at Risk Value at Risk, Expected ShorfallExpected Shortfall, and Other Risk Measures," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 27, pages 1103-1169, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_27
    DOI: 10.1007/978-3-030-84600-8_27
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