Model Risk of VaR and ES Using Monte Carlo: Study on Financial Institutions from Paris and Frankfurt Stock Exchanges

Aleksandra Helena Pasieczna ()
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Aleksandra Helena Pasieczna: Koźmiński University

A chapter in Contemporary Trends and Challenges in Finance, 2021, pp 75-85 from Springer

Abstract: Abstract The aim of this research was to analyze the model risk of Expected Shortfall and Value at Risk in different configurations. The study was done using the close market prices of financial institutions between 2000 and 2020, from the Paris and Frankfurt stock exchanges. We empirically demonstrated a quantitative estimation of the precision metrics for various configurations of Value at Risk and Expected Shortfall computed using four different Monte Carlo approaches. We used two precision metrics to judge these models—the ratio and the spread. The precision provides an estimate of the reproducibility of the model (variability) and we propose using functions of the precision to represent the risk of the outcome of the model.

Keywords: ES; VaR; Monte Carlo; Model risk; Precision; European Banks (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-73667-5_5

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DOI: 10.1007/978-3-030-73667-5_5

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