Robustness and sensitivity analysis of risk measurement procedures

Rama Cont (), Romain Deguest () and Giacomo Scandolo ()
Additional contact information
Rama Cont: LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique, Center for Financial Engineering, Columbia University - Columbia University [New York]
Romain Deguest: Center for Financial Engineering, Columbia University - Columbia University [New York]
Giacomo Scandolo: DIMAD - Dipartimento di Matematica per le Decisioni - UniFI - Università degli Studi di Firenze = University of Florence = Université de Florence

Post-Print from HAL

Abstract: Measuring the risk of a financial portfolio involves two steps: estimating the loss distribution of the portfolio from available observations and computing a ``risk measure" which summarizes the risk of the portfolio. We define the notion of ``risk measurement procedure", which includes both of these steps and introduce a rigorous framework for studying the robustness of risk measurement procedures and their sensitivity to changes in the data set. Our results point to a conflict between subadditivity and robustness of risk measurement procedures and show that the same risk measure may exhibit quite different sensitivities depending on the estimation procedure used. Our results illustrate in particular that using recently proposed risk measures like CVaR/ expected shortfall lead to a less robust risk measurement procedure than historical Value at Risk. We also propose alternative risk measurement procedures which possess the robustness property.

Keywords: robust statistics; risk measure; influence function; sensitivity analysis; risk management (search for similar items in EconPapers)
Date: 2010-06-01
Note: View the original document on HAL open archive server: https://hal.science/hal-00413729v1
References: Add references at CitEc
Citations: View citations in EconPapers (166)

Published in Quantitative Finance, 2010, 10 (6), pp.593 - 606. ⟨10.1080/14697681003685597⟩

Downloads: (external link)
https://hal.science/hal-00413729v1/document (application/pdf)

Related works:
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:hal:journl:hal-00413729

DOI: 10.1080/14697681003685597

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().