Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/65803
Authors: 
Wong, Woon K.
Copeland, Laurence
Year of Publication: 
2008
Series/Report no.: 
Cardiff Economics Working Papers E2008/14
Abstract: 
The current subprime crisis has prompted us to look again into the nature of risk at the tail of the distribution. In particular, we investigate the risk contribution of an asset, which has infrequent but huge losses, to a portfolio using two risk measures, namely Value-at-Risk (VaR) and Expected Shortfall (ES). While ES is found to measure the tail risk contribution effectively, VaR is consistent with intuition only if the underlying return distribution is well behaved. To facilitate the use of ES, we present a power function formula that can calculate accurately the critical values of the ES test statistic. This in turn enables us to derive a size-based multiplication factor for risk capital requirement.
Subjects: 
Value-at-Risk
expected shortfall
tail risk contribution
saddlepoint technique
risk capital
JEL: 
G11
G32
Document Type: 
Working Paper

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