Testing Expected Shortfall Models for Derivative Positions

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

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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

Keywords

  • testing
  • models
  • distribution
  • risk management
  • derivatives

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  • 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). Finance.