Testing Expected Shortfall Models for Derivative Positions

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

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 language	English
Place of Publication	Tilburg
Publisher	Finance
Number of pages	24
Volume	2003-24
Publication status	Published - 2003

Publication series

Name	CentER Discussion Paper
Volume	2003-24

Keywords

testing
models
distribution
risk management
derivatives

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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.",

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T1 - Testing Expected Shortfall Models for Derivative Positions

AU - Kerkhof, F.L.J.

AU - Melenberg, B.

AU - Schumacher, J.M.

N1 - Pagination: 24

PY - 2003

Y1 - 2003

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 -

Testing Expected Shortfall Models for Derivative Positions

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