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Sensitivity Analysis of Var and Expected Shortfall for Portfolios under Netting Agreements

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  • Jean-David Fermanian

    (Crest)

  • Olivier Scaillet

    (Crest)

Abstract

In this paper, we characterize explicitly the first derivative of the Value at Risk and theExpected Shortfall with respect to portfolio allocation when netting between positions exists.As a particular case, we examine a simple Gaussian example in order to illustrate theimpact of netting agreements in credit risk management. Collateral issues are also dealtwith. For practical purposes we further provide nonparametric estimators for sensitivitiesand derive their asymptotic distributions. An empirical application on a typical bankingportfolio is finally provided.

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  • Jean-David Fermanian & Olivier Scaillet, 2003. "Sensitivity Analysis of Var and Expected Shortfall for Portfolios under Netting Agreements," Working Papers 2003-33, Center for Research in Economics and Statistics.
    • Handle: RePEc:crs:wpaper:2003-33
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    2. Jin Peng, 2011. "Credibilistic value and average value at risk in fuzzy risk analysis," Fuzzy Information and Engineering, Springer, vol. 3(1), pages 69-79, March.
    3. Borgonovo, Emanuele & Hazen, Gordon B. & Jose, Victor Richmond R. & Plischke, Elmar, 2021. "Probabilistic sensitivity measures as information value," European Journal of Operational Research, Elsevier, vol. 289(2), pages 595-610.
    4. So Yeon Chun & Alexander Shapiro & Stan Uryasev, 2012. "Conditional Value-at-Risk and Average Value-at-Risk: Estimation and Asymptotics," Operations Research, INFORMS, vol. 60(4), pages 739-756, August.
    5. Ivanov Roman V., 2018. "On risk measuring in the variance-gamma model," Statistics & Risk Modeling, De Gruyter, vol. 35(1-2), pages 23-33, January.
    6. Hatem Salah & Marwa Souissi, 2016. "Financial Stability and Macro Prudential Regulation: Policy Implication of Systemic Expected Shortfall Measure," Working Papers 985, Economic Research Forum, revised Apr 2016.
    7. J. Christopher Westland, 2015. "Economics of eBay’s buyer protection plan," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-20, December.
    8. Härdle, Wolfgang Karl & Ling, Chengxiu, 2018. "How Sensitive are Tail-related Risk Measures in a Contamination Neighbourhood?," IRTG 1792 Discussion Papers 2018-010, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    9. Christian Gourieroux & Wei Liu, 2006. "Sensitivity Analysis of Distortion Risk Measures," Working Papers 2006-33, Center for Research in Economics and Statistics.
    10. Lorenzo Camponovo & Olivier Scaillet & Fabio Trojani, 2017. "Comment on: Nonparametric Tail Risk, Stock Returns, and the Macroeconomy," Journal of Financial Econometrics, Oxford University Press, vol. 15(3), pages 377-387.
    11. Wang, Chuan-Sheng & Zhao, Zhibiao, 2016. "Conditional Value-at-Risk: Semiparametric estimation and inference," Journal of Econometrics, Elsevier, vol. 195(1), pages 86-103.
    12. Christian Gourieroux & Wei Liu, 2006. "Efficient Portfolio Analysis Using Distortion Risk Measures," Working Papers 2006-17, Center for Research in Economics and Statistics.
    13. Ruodu Wang & Ričardas Zitikis, 2021. "An Axiomatic Foundation for the Expected Shortfall," Management Science, INFORMS, vol. 67(3), pages 1413-1429, March.
    14. Yao, Haixiang & Huang, Jinbo & Li, Yong & Humphrey, Jacquelyn E., 2021. "A general approach to smooth and convex portfolio optimization using lower partial moments," Journal of Banking & Finance, Elsevier, vol. 129(C).
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    16. Kellner, Ralf & Rösch, Daniel, 2016. "Quantifying market risk with Value-at-Risk or Expected Shortfall? – Consequences for capital requirements and model risk," Journal of Economic Dynamics and Control, Elsevier, vol. 68(C), pages 45-63.
    17. Monica Billio & Lorenzo Frattarolo & Loriana Pelizzon, 2016. "Hedge Fund Tail Risk: An investigation in stressed markets, extended version with appendix," Working Papers 2016:01, Department of Economics, University of Venice "Ca' Foscari".
    18. Deepak Jadhav & T.V. Ramanathan & U.V. Naik-Nimbalkar, 2009. "Modified Estimators of the Expected Shortfall," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 8(2), pages 87-107, May.
    19. Brandtner, Mario & Kürsten, Wolfgang, 2015. "Decision making with Expected Shortfall and spectral risk measures: The problem of comparative risk aversion," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 268-280.
    20. Bauer, Daniel & Zanjani, George, 2021. "Economic capital and RAROC in a dynamic model," Journal of Banking & Finance, Elsevier, vol. 125(C).

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