Value-at-risk and ruin probability

Jiandong Ren

Journal of Risk

Abstract: ABSTRACT Value-at-risk (VaR) is a widely used risk measure. Despite its popularity, it has been criticized by risk managers and academics for ignoring the tail, which is the most detrimental part of the risk. In this paper we show that ultimate ruin probability, which has a long history but is unpopular in real-world applications, may actually provide useful information about financial or actuarial risks. It can also address some of the criticisms of the more popular risk measure VaR.

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