Is there a gain to explicitly modelling extremes? A risk management analysis

There is a requirement for decisions taken by risk managers in investment banks to be based upon reliable measures.

Author(s):

Jean-Christophe Meyfredi

Professor of Finance,Research Associate, Edhec Risk and Asset Management Research Centre

Most of the time some strong assumptions are made to simplify the estimation process and there has to be a trade-off between ease of estimate and accuracy. In this paper we develop a copula-based approach in order to estimate the Value-at-Risk of portfolios containing financial assets. We propose a survival copula that could solve many difficulties that risk managers currently have to face. We compare the results it provides to those of more classic copulas, on portfolios composed of two and three indices between 1991 and 2005, so that our study covers various market trends. The Heavy Right Tail copula we propose fulfills the various backtest constraints required by regulators.

Type: Working paper
Date: le 07/03/2005
Research Cluster : Finance

See Also

17 NEW STARTUPS JOIN THE EDHEC ENTREPRENEURS ADVENTURE
News
- 25-01-2022
2022 looks promising! EDHEC Entrepreneurs and its team are very pleased to welcome 17...
Climate change: a new type of risk for the financial industry?
News
- 25-01-2022
Climate change has been recognized as a new type of risk for finance by academics and...
Meet a student: the power of EDHEC’s Alumni network
News
- 25-01-2022
Junjie Feng joined EDHEC’s Master in Management-Business Management in 2019. He will...
The fight against climate change central to the EDHEC-Coursera specialisation
News
- 21-01-2022
EDHEC Business School launched the “Climate Change and Sustainable Investing”...