Testing Expected Shortfall Models for Derivative Positions

F.L.J. Kerkhof, B. Melenberg, J.M. Schumacher

Research output: Working paperDiscussion paperOther research output

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Abstract

In this paper we test several risk management models for computing expected shortfall for one-period hedge errors of hedged derivatives positions.Contrary to value-at-risk, expected shortfall cannot be tested using the standard binomial test, since we need information of the distribution in the tail.As derivatives positions change characteristics and thereby the size of risk exposures over time one cannot apply the standard tests based on stationarity.To overcome this problem, we present a transformation procedure.For comparison purposes the tests are also performed for value-at-risk.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages24
Volume2003-24
Publication statusPublished - 2003

Publication series

NameCentER Discussion Paper
Volume2003-24

Fingerprint

Derivatives
Expected shortfall
Testing
Value at risk
Hedge
Risk management
Information needs
Stationarity
Management model
Risk exposure

Keywords

  • testing
  • models
  • distribution
  • risk management
  • derivatives

Cite this

Kerkhof, F. L. J., Melenberg, B., & Schumacher, J. M. (2003). Testing Expected Shortfall Models for Derivative Positions. (CentER Discussion Paper; Vol. 2003-24). Tilburg: Finance.
Kerkhof, F.L.J. ; Melenberg, B. ; Schumacher, J.M. / Testing Expected Shortfall Models for Derivative Positions. Tilburg : Finance, 2003. (CentER Discussion Paper).
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Kerkhof, FLJ, Melenberg, B & Schumacher, JM 2003 'Testing Expected Shortfall Models for Derivative Positions' CentER Discussion Paper, vol. 2003-24, Finance, Tilburg.

Testing Expected Shortfall Models for Derivative Positions. / Kerkhof, F.L.J.; Melenberg, B.; Schumacher, J.M.

Tilburg : Finance, 2003. (CentER Discussion Paper; Vol. 2003-24).

Research output: Working paperDiscussion paperOther research output

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T1 - Testing Expected Shortfall Models for Derivative Positions

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PY - 2003

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N2 - In this paper we test several risk management models for computing expected shortfall for one-period hedge errors of hedged derivatives positions.Contrary to value-at-risk, expected shortfall cannot be tested using the standard binomial test, since we need information of the distribution in the tail.As derivatives positions change characteristics and thereby the size of risk exposures over time one cannot apply the standard tests based on stationarity.To overcome this problem, we present a transformation procedure.For comparison purposes the tests are also performed for value-at-risk.

AB - In this paper we test several risk management models for computing expected shortfall for one-period hedge errors of hedged derivatives positions.Contrary to value-at-risk, expected shortfall cannot be tested using the standard binomial test, since we need information of the distribution in the tail.As derivatives positions change characteristics and thereby the size of risk exposures over time one cannot apply the standard tests based on stationarity.To overcome this problem, we present a transformation procedure.For comparison purposes the tests are also performed for value-at-risk.

KW - testing

KW - models

KW - distribution

KW - risk management

KW - derivatives

M3 - Discussion paper

VL - 2003-24

T3 - CentER Discussion Paper

BT - Testing Expected Shortfall Models for Derivative Positions

PB - Finance

CY - Tilburg

ER -

Kerkhof FLJ, Melenberg B, Schumacher JM. Testing Expected Shortfall Models for Derivative Positions. Tilburg: Finance. 2003. (CentER Discussion Paper).