Value at Risk (VaR) and the alpha-stable distribution
John Frain ()
Economic Papers from Trinity College Dublin, Economics Department
Volatility in financial markets is a matter of considerable concern to financial institutions and their supervisors. Already it is clear that this volatility has had an adverse effect on the real economy. Many measures of risk that are used today do not take full account of the kind of extreme changes in asset prices that have been observed. This paper finds that the Value at Risk measure of risk can be improved by the use of an alpha-stable distribution in place of more conventional measures. The paper describes the use of this measure and implements it for six total returns equity portfolios. We find that alpha-stable based measures are feasible and are better than conventional measures. They are a useful tool for the risk manager and the financial regulator.
Keywords: alpha stable distribution; Value at Risk; VaR (search for similar items in EconPapers)
JEL-codes: C13 C16 C46 G18 G19 G28 G29 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2008-05, Revised 2008-05
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Persistent link: https://EconPapers.repec.org/RePEc:tcd:tcduee:tep0308
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