Tail Risk of Equity Market Indices: An Extreme Value Theory Approach

Lixia Loh, Stoyan Stoyanov: Value-at-risk (VaR) and conditional valueat-risk (CVaR) have become standard choices for risk measures in finance.

Author(s):

Lixia Loh

Senior research engineer at EDHEC Risk Institute–Asia.

Stoyan Stoyanov

Professor of finance at EDHEC Business School and head of research at EDHEC Risk Institute-Asia.

Both VaR and CVaR are examples of measures of tail risk, or downside risk, because they are designed to exhibit a degree of sensitivity to large portfolio losses whose frequency of occurrence is described by what is known as the tail of the distribution: a part of the loss distribution away from the central region geometrically resembling a tail. In practice, VaR provides a loss threshold exceeded with some small predefined probability, usually 1% or 5%, while CVaR measures the average loss higher than VaR and is, therefore, more informative about extreme losses. An interesting practical question is to compare tail risk as measured by VaR and/or CVaR across different markets. There are at least two reasons for that. First, understanding the sources of tail risk is the first step towards designing methods for its management and, second, understanding differences across markets is important for risk management for international portfolios.
Pdf
Tail Risk of Equity Market Indices: An Extreme Value Theory Approach...
(-1.00 B)
Type: EDHEC Publication
Date: le 18/10/2013
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

See Also

Coursera: Global Financing Solutions by EDHEC & Société Générale
News
- 21-03-2019
Before the launch in june of a special track in Data Science and Machine Learning in...
How To: 8 tips for choosing your MBA
News
- 08-03-2019
Embarking on an MBA can be life-changing. It’s also an investment on many levels; you’...
European Excellence and Make an Impact Scholarships available for September 2019 Intake
News
- 07-03-2019
Two New Scholarship Programmes for 2019 EDHEC Business School has added two new Global...
Paper co-authored by Lionel Martellini and Vincent Milhau wins the 20th Annual Bernstein Fabozzi/Jacobs Levy Award for Outstanding Article from the Journal of Portfolio Management
News
- 04-03-2019
The paper, entitled "Proverbial Baskets Are Uncorrelated Risk Factors! A Factor-Based...