Equivalent Risk Indicators: VaR, TCE, and Beyond

Silvia Faroni, Olivier Le Courtois and Krzysztof Ostaszewski
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Silvia Faroni: EMLyon Business School, 23, Avenue Guy de Collongue, CEDEX, 69134 Ecully, France
Olivier Le Courtois: EMLyon Business School, 23, Avenue Guy de Collongue, CEDEX, 69134 Ecully, France
Krzysztof Ostaszewski: College of Arts and Science, Illinois State University (ISU), Normal, IL 61790-4520, USA

Risks, 2022, vol. 10, issue 8, 1-19

Abstract: While a lot of research concentrates on the respective merits of VaR and TCE, which are the two most classic risk indicators used by financial institutions, little has been written on the equivalence between such indicators. Further, TCE, despite its merits, may not be the most accurate indicator to take into account the nature of probability distribution tails. In this paper, we introduce a new risk indicator that extends TCE to take into account higher-order risks. We compare the quantiles of this indicator to the quantiles of VaR in a simple Pareto framework, and then in a generalized Pareto framework. We also examine equivalence results between the quantiles of high-order TCEs.

Keywords: VaR; TCE; extended TCE; insurance regulation; risk measurement (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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