Expected shortfall or median shortfall

Steven Kou () and Xianhua Peng ()
Additional contact information
Steven Kou: National University of Singapore, Singapore;
Xianhua Peng: Hong Kong University of Science and Technology, Hong Kong

Journal of Financial Engineering (JFE), 2014, vol. 01, issue 01, 1-6

Abstract: In a recent consultative document, the Basel Committee on Banking Supervision suggests replacing Value-at-Risk (VaR) by expected shortfall (ES) for setting capital requirements for banks' trading books because ES better captures tail risk than VaR. However, besides ES, another risk measure called median shortfall (MS) also captures tail risk by taking into account both the size and likelihood of losses. We argue that MS is a better alternative than ES as a risk measure for setting capital requirements because: (i) MS is elicitable but ES is not; (ii) MS has distributional robustness with respect to model misspecification but ES does not; (iii) MS is easy to implement but ES is not.

Keywords: Model uncertainty; robustness; elicitability; backtest; Value-at-Risk; expected shortfall; median shortfall; Basel accord; capital requirements; C10; C44; C53; D81; G17; G18; G28; K23 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S234576861450007X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:jfexxx:v:01:y:2014:i:01:n:s234576861450007x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S234576861450007X

Access Statistics for this article

Journal of Financial Engineering (JFE) is currently edited by George Yuan

More articles in Journal of Financial Engineering (JFE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().