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Stochastics for the worst case: distributions and risk measures for minimal returns

Mihnea-Stefan Mihai ()

Risk and Insurance from University Library of Munich, Germany

Abstract: Distributions for returns are used to compute the capital charge for portfolios in investment banks. The mainstream definition of returns is based on closing prices and neglects the important effects of intraday trading activity on the losses . In this paper we introduce ''minimal returns'', a definition of returns that accounts for intraday trading and gives a worst-case approach on losses. We suggest an appropriate distribution for minimal returns that can be used to compute Value at Risk and coherent risk measures, as suggested by Artzner et al. (1997).

Keywords: Risk measures; Value at Risk; Stock Returns; Binomial Tree; Brownian Motion; Capital Charge; Risk Management; Worst Case Analysis; Binomial Tree Extremes (search for similar items in EconPapers)
JEL-codes: C22 C24 C49 G1 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2003-05-28
Note: Type of Document - PdfTeX; prepared on Linux; to print on HP;
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Handle: RePEc:wpa:wuwpri:0305001