The Stress VaR: A New Risk Concept for Extreme Risk and Fund Allocation

Cyril Coste, Raphael Douady () and Ilija Zovko
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Cyril Coste: ENS Cachan - École normale supérieure - Cachan

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Abstract: In this article the authors introduce an approach to risk estimation based on nonlinear factor-models--the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. The computation of the StressVaR is a three-step procedure whose main component is to use the fairly short and sparse history of the hedge fund returns to identify relevant risk factors among a very broad set of possible risk sources. This risk profile is obtained by calibrating a polymodel, which is a collection of nonlinear single-factor models, as opposed to a single multi-factor model. The authors then use the risk profile and the very long and rich history of the factors to assess the possible impact of known past crises on the funds, unveiling their hidden risks and so called "black swans."

Keywords: Risk; Investment; Hedge Funds (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (6)

Published in Journal of Alternative Investments, 2011, 13 (3), pp.10-23. ⟨10.3905/jai.2011.13.3.010⟩

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Related works:
Working Paper: The Stress VaR: A New Risk Concept for Extreme Risk and Fund Allocation (2011)
Working Paper: The StressVaR: A New Risk Concept for Extreme Risk and Fund Allocation (2010)
Working Paper: The StressVaR: A New Risk Concept for Extreme Risk and Fund Allocation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00666234

DOI: 10.3905/jai.2011.13.3.010

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