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http://hdl.handle.net/10419/25549
  
Title:Value-at-Risk and expected shortfall for rare events PDF Logo
Authors:Mittnik, Stefan
Yener, Tina
Issue Date:2008
Series/Report no.:CFS Working Paper 2008/14
Abstract:We show that the use of correlations for modeling dependencies may lead to counterintuitive behavior of risk measures, such as Value-at-Risk (VaR) and Expected Short- fall (ES), when the risk of very rare events is assessed via Monte-Carlo techniques. The phenomenon is demonstrated for mixture models adapted from credit risk analysis as well as for common Poisson-shock models used in reliability theory. An obvious implication of this finding pertains to the analysis of operational risk. The alleged incentive suggested by the New Basel Capital Accord (Basel II), amely decreasing minimum capital requirements by allowing for less than perfect correlation, may not necessarily be attainable.
Subjects:Operational Risk
Latent Variables
Correlated Events
JEL:C52
G11
G32
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-56871
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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