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Optimal nonparametric estimation of the expected shortfall risk

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  • Daniel Bartl
  • Stephan Eckstein

Abstract

We address the problem of estimating the expected shortfall risk of a financial loss using a finite number of i.i.d. data. It is well known that the classical plug-in estimator suffers from poor statistical performance when faced with (heavy-tailed) distributions that are commonly used in financial contexts. Further, it lacks robustness, as the modification of even a single data point can cause a significant distortion. We propose a novel procedure for the estimation of the expected shortfall and prove that it recovers the best possible statistical properties (dictated by the central limit theorem) under minimal assumptions and for all finite numbers of data. Further, this estimator is adversarially robust: even if a (small) proportion of the data is maliciously modified, the procedure continuous to optimally estimate the true expected shortfall risk. We demonstrate that our estimator outperforms the classical plug-in estimator through a variety of numerical experiments across a range of standard loss distributions.

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  • Daniel Bartl & Stephan Eckstein, 2024. "Optimal nonparametric estimation of the expected shortfall risk," Papers 2405.00357, arXiv.org.
    • Handle: RePEc:arx:papers:2405.00357
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    References listed on IDEAS

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    1. Carlo Acerbi, 2007. "Coherent measures of risk in everyday market practice," Quantitative Finance, Taylor & Francis Journals, vol. 7(4), pages 359-364.
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