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VaR and ES for linear portfolios with mixture of generalized Laplace distributions risk factors

Author

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  • Jules Sadefo-Kamdem

    (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)

Abstract

In this paper, we propose an explicit estimation of Value-at-Risk (VaR) and Expected Shortfall (ES) for linear portfolios when the risk factors change with a convex mixture of generalized Laplace distributions (M-GLD). We introduce the dynamics Delta-GLD-VaR, Delta-GLD-ES, Delta-MGLD-VaR and Delta-MGLD-ES, by using conditional correlation multivariate GARCH. The generalized Laplace distribution impose less restrictive assumptions during estimation that should improve the precision of the VaR and ES through the varying shape and fat tails of the risk factors in relation with the historical sample data. We also suggested some areas of application to measure price risk in agriculture, risk management and financial portfolio optimization.

Suggested Citation

  • Jules Sadefo-Kamdem, 2012. "VaR and ES for linear portfolios with mixture of generalized Laplace distributions risk factors," Post-Print hal-02901914, HAL.
    • Handle: RePEc:hal:journl:hal-02901914
    DOI: 10.1007/s10436-009-0138-6
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    References listed on IDEAS

    as
    1. Sadefo Kamdem, J. & Genz, A., 2008. "Approximation of multiple integrals over hyperboloids with application to a quadratic portfolio with options," Computational Statistics & Data Analysis, Elsevier, vol. 52(7), pages 3389-3407, March.
    2. Jules Sadefo Kamdem, 2005. "Value-At-Risk And Expected Shortfall For Linear Portfolios With Elliptically Distributed Risk Factors," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(05), pages 537-551.
    3. Ben White & P. J. Dawson, 2005. "Measuring Price Risk on UK Arable Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 56(2), pages 239-252, July.
    4. Engle, Robert F & Sheppard, Kevin K, 2001. "Theoretical and Empirical Properties of Dynamic Conditional Correlation Multivariate GARCH," University of California at San Diego, Economics Working Paper Series qt5s2218dp, Department of Economics, UC San Diego.
    5. Jules SADEFO KAMDEM, 2004. "Value-at-Risk and Expected Shortfall for Quadratic Portfolio of Securities with Mixture of Elliptic Distribution Risk Factors," Computing in Economics and Finance 2004 12, Society for Computational Economics.
    6. Sadefo Kamdem, J., 2009. "[Delta]-VaR and [Delta]-TVaR for portfolios with mixture of elliptic distributions risk factors and DCC," Insurance: Mathematics and Economics, Elsevier, vol. 44(3), pages 325-336, June.
    7. Bormetti, Giacomo & Cisana, Enrica & Montagna, Guido & Nicrosini, Oreste, 2007. "A non-Gaussian approach to risk measures," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 376(C), pages 532-542.
    8. Jules Sadefo Kamdem, 2007. "VaR and ES for linear portfolios with mixture of elliptic distributions risk factors," Post-Print hal-02938574, HAL.
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    Cited by:

    1. J. Hambuckers & C. Heuchenne, 2017. "A robust statistical approach to select adequate error distributions for financial returns," Journal of Applied Statistics, Taylor & Francis Journals, vol. 44(1), pages 137-161, January.
    2. Dobrislav Dobrev∗ & Travis D. Nesmith & Dong Hwan Oh, 2017. "Accurate Evaluation of Expected Shortfall for Linear Portfolios with Elliptically Distributed Risk Factors," JRFM, MDPI, vol. 10(1), pages 1-14, February.
    3. Sadefo Kamdem, J. & Genz, A., 2008. "Approximation of multiple integrals over hyperboloids with application to a quadratic portfolio with options," Computational Statistics & Data Analysis, Elsevier, vol. 52(7), pages 3389-3407, March.

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    More about this item

    Keywords

    Capital allocation; Dynamic volatility; Risk management; Price risk in agriculture; Expected Shortfall;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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