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Uncertainty in historical Value-at-Risk: an alternative quantile-based risk measure

Author

Listed:
  • Dominique Guegan

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Bertrand K. Hassani

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Kehan Li

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

Abstract

The financial industry has extensively used quantile-based risk measures relying on the Value-at-Risk (VaR). They need to be estimated from relevant historical data set. Consequently, they contain uncertainty. We propose an alternative quantile-based risk measure (the Spectral Stress VaR) to capture the uncertainty in the historical VaR approach. This one provides flexibility to the risk manager to implement prudential regulatory framework. It can be a VaR based stressed risk measure. In the end we propose a stress testing application for it.

Suggested Citation

  • Dominique Guegan & Bertrand K. Hassani & Kehan Li, 2016. "Uncertainty in historical Value-at-Risk: an alternative quantile-based risk measure," Post-Print halshs-01277880, HAL.
    • Handle: RePEc:hal:journl:halshs-01277880
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01277880
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    References listed on IDEAS

    as
    1. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
    2. Dominique Gu�gan & Bertrand Hassani & Kehan Li, 2015. "The Spectral Stress VaR (SSVaR)," Working Papers 2015:17, Department of Economics, University of Venice "Ca' Foscari".
    3. Dominique Guegan & Bertrand K. Hassani & Kehan Li, 2015. "The Spectral Stress VaR (SSVaR)," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01169537, HAL.
    4. Pérignon, Christophe & Smith, Daniel R., 2010. "The level and quality of Value-at-Risk disclosure by commercial banks," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 362-377, February.
    5. Matthew Pritsker, 1997. "Evaluating Value at Risk Methodologies: Accuracy versus Computational Time," Journal of Financial Services Research, Springer;Western Finance Association, vol. 12(2), pages 201-242, October.
    6. Frédéric Godin & Silvia Mayoral & Manuel Morales, 2012. "Contingent Claim Pricing Using a Normal Inverse Gaussian Probability Distortion Operator," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(3), pages 841-866, September.
    7. Dominique Guegan & Bertrand K. Hassani & Kehan Li, 2015. "The Spectral Stress VaR (SSVaR)," Post-Print halshs-01169537, HAL.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Historical method; Uncertainty; Value-at-Risk; Stress risk measure; Tail risk measure; Prudential financial regulation; Stress testing;
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