 Sensitivity-based Conditional Value at Risk (SCVaR): An efficient measurement of credit exposure for optionsRuoshi Shi, Yanlong Zhao, Ying Bao and Cheng Peng The North American Journal of Economics and Finance, 2022, vol. 62, issue C Abstract: Counterparty Credit Risk (CCR) has received extensive attention in the Over-The-Counter (OTC) derivative markets. This paper proposes a credit risk exposure measurement for European options: Sensitivity-based Conditional Value at Risk (SCVaR), which can cover the future credit risk by a stable sensitivity weight, and improve the accuracy of risk tracking in most cases. Compared with VaR and CVaR, SCVaR has superiority in extensibility, computational efficiency and stability. We further derive the tendency and upper bound of sensitivity weights, consequently obtaining a practical value of price weight for long-term stability. The simulation and empirical analysis in the Chinese options market also show good applicability of SCVaR. The risk exposures are efficiently covered during periods of fluctuation, which alleviates the procyclicality to some extent. These results provide a useful guidance for the development of financial risk management. Keywords: Counterparty credit exposure; VaR; CVaR; Sensitivity; Greeks (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:62:y:2022:i:c:s106294082200122x DOI: 10.1016/j.najef.2022.101781 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.