Equivalent Risk Indicators: VaR, TCE, and Beyond

Silvia Faroni, Olivier Le Courtois and Krzysztof Ostaszewski
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Olivier Le Courtois: EM - EMLyon Business School

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Abstract: While a lot of research concentrates on the respective merits of VaR and TCE, which are the two most classic risk indicators used by financial institutions, little has been written on the equivalence between such indicators. Further, TCE, despite its merits, may not be the most accurate indicator to take into account the nature of probability distribution tails. In this paper, we introduce a new risk indicator that extends TCE to take into account higher-order risks. We compare the quantiles of this indicator to the quantiles of VaR in a simple Pareto framework, and then in a generalized Pareto framework. We also examine equivalence results between the quantiles of high-order TCEs.

Keywords: VaR; TCE; extended TCE; Insurance regulation; Risk measurement (search for similar items in EconPapers)
Date: 2022-08-01
New Economics Papers: this item is included in nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-04325627v1
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Published in Risks, 2022, 10 (8), 19 p

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04325627

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