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Strategic Long-Term Financial Risks: Single Risk Factors
Source
Computational Optimization and Applications archiveVolume 32 , Issue 1-2 (October 2005) table of contents
Pages: 61 - 90
Year of Publication: 2005
ISSN:0926-6003
Authors
Paul Embrechts
Department of Mathematics, ETH Zurich, Zürich, Switzerland CH-8092
Roger Kaufmann
Department of Mathematics, ETH Zurich, Zürich, Switzerland CH-8092
Pierre Patie
Department of Mathematics, ETH Zurich, Zürich, Switzerland CH-8092
Publisher
Kluwer Academic Publishers Norwell, MA, USA
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10.1007/s10589-005-2054-7
ABSTRACT
The question of the measurement of strategic long-term financial risks is of considerable importance. Existing modelling instruments allow for a good measurement of market risks of trading books over relatively small time intervals. However, these approaches may have severe deficiencies if they are routinely applied to longer time periods. In this paper we give an overview on methodologies that can be used to model the evolution of risk factors over a one-year horizon. Different models are tested on financial time series data by performing backtesting on their expected shortfall predictions.
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INDEX TERMS
Primary Classification: I. Computing Methodologies I.6 SIMULATION AND MODELING I.6.4 Model Validation and Analysis
Additional Classification: J. Computer Applications J.4 SOCIAL AND BEHAVIORAL SCIENCES Subjects: Economics
General Terms: Design, Economics, Experimentation, Measurement, Performance
Keywords: GARCH process, autoregressive model, expected shortfall, extreme value theory, random walk, scaling rules, value-at-risk
Collaborative Colleagues:
Paul Embrechts: colleagues
Roger Kaufmann: colleagues
Pierre Patie: colleagues