Why risk is so hard to measure

Jon Danielsson and Chen Zhou ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper analyzes the robustness of standard risk analysis techniques, with a special emphasis on the specifications in Basel III. We focus on the difference between Value– at–Risk and expected shortfall, the small sample properties of these risk measures and the impact of using an overlapping approach to construct data for longer holding periods. Overall, risk forecasts are extremely uncertain at low sample sizes. By comparing the estimation uncertainty, we find that Value–at–Risk is superior to expected shortfall and the time-scaling approach for risk forecasts with longer holding periods is preferable to using overlapping data.

Keywords: value–at–risk; expected shortfall; finite sample properties; Basel II (search for similar items in EconPapers)
JEL-codes: C10 C15 G18 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2015-04-23
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:62002

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