Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25447
Authors: 
Andersen, Torben G.
Bollerslev, Tim
Christoffersen, Peter F.
Diebold, Francis X.
Year of Publication: 
2005
Series/Report no.: 
CFS Working Paper 2005/02
Abstract: 
What do academics have to offer market risk management practitioners in financial institutions? Current industry practice largely follows one of two extremely restrictive approaches: historical simulation or RiskMetrics. In contrast, we favor flexible methods based on recent developments in financial econometrics, which are likely to produce more accurate assessments of market risk. Clearly, the demands of real-world risk management in financial institutions - in particular, real-time risk tracking in very high-dimensional situations - impose strict limits on model complexity. Hence we stress parsimonious models that are easily estimated, and we discuss a variety of practical approaches for high-dimensional covariance matrix modeling, along with what we see as some of the pitfalls and problems in current practice. In so doing we hope to encourage further dialog between the academic and practitioner communities, hopefully stimulating the development of improved market risk management technologies that draw on the best of both worlds.
JEL: 
G10
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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