Scenario-based risk evaluation

Ruodu Wang () and Johanna F. Ziegel ()
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Ruodu Wang: University of Waterloo
Johanna F. Ziegel: University of Bern

Finance and Stochastics, 2021, vol. 25, issue 4, No 4, 725-756

Abstract: Abstract Risk measures such as expected shortfall (ES) and value-at-risk (VaR) have been prominent in banking regulation and financial risk management. Motivated by practical considerations in the assessment and management of risks, including tractability, scenario relevance and robustness, we consider theoretical properties of scenario-based risk evaluation. We establish axiomatic characterisations of scenario-based risk measures that are comonotonic-additive or coherent, and we obtain a novel ES-based representation result. We propose several novel scenario-based risk measures, including various versions of Max-ES and Max-VaR, and study their properties. The theory is illustrated with financial data examples.

Keywords: Scenarios; Risk measures; Basel Accords; Stress adjustment; Dependence adjustment; 91G70; 91B05 (search for similar items in EconPapers)
JEL-codes: C69 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/s00780-021-00460-9

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