Computation of the corrected Cornish–Fisher expansion using the response surface methodology: application to VaR and CVaR

Charles-Olivier Amédée-Manesme (), Fabrice Barthélémy () and Didier Maillard ()
Additional contact information
Charles-Olivier Amédée-Manesme: Laval University
Didier Maillard: Conservatoire National des Arts et Métiers (CNAM); Amundi Asset Management

Annals of Operations Research, 2019, vol. 281, issue 1, No 19, 423-453

Abstract: Abstract The Cornish–Fisher expansion is a simple way to determine quantiles of non-normal distributions. It is frequently used by practitioners and by academics in risk management, portfolio allocation, and asset liability management. It allows us to consider non-normality and, thus, moments higher than the second moment, using a formula in which terms in higher-order moments appear explicitly. This paper has two primary objectives. First, we resolve the classic confusion between the skewness and kurtosis coefficients of the formula and the actual skewness and kurtosis of the distribution when using the Cornish–Fisher expansion. Second, we use the response surface approach to estimate a function for these two values. This helps to overcome the difficulties associated with using the Cornish–Fisher expansion correctly to compute value at risk. In particular, it allows a direct computation of the quantiles. Our methodology has many practical applications in risk management and asset allocation.

Keywords: Cornish–Fisher expansion; Response surface methodology; Quantiles; Value at Risk; Expected shortfall (search for similar items in EconPapers)
JEL-codes: C15 C44 C46 D81 G32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://link.springer.com/10.1007/s10479-018-2792-4 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Computation of the Corrected Cornish-Fisher Expansion using the Response Surface Methodology: Application to V aR and CV aR (2017)
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:spr:annopr:v:281:y:2019:i:1:d:10.1007_s10479-018-2792-4

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1007/s10479-018-2792-4

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().