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Risk models–at–risk

Boucher, Christophe M., Danielsson, Jon, Kouontchou, Patrick S. and Maillet, Bertrand B. (2013) Risk models–at–risk. SRC Discussion Paper (No 8). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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The experience from the global financial crisis has raised serious concerns about the accuracy of standard risk measures as tools for the quantification of extreme downward risk. A key reason for this is that risk measures are subject to model risk due, e.g., to specification and estimation uncertainty. While the authorities would like financial institutions to assess model risk, there is no accepted approach for such computations. We propose a remedy for this by a general framework for the computation of risk measures robust to model risk by empirically adjusting imperfect risk forecasts by outcomes from backtesting, considering the desirable quality of VaR models such as the frequency, independence and magnitude of violations. We also provide a fair comparison between the main risk models using the same metric that corresponds to model risk required corrections.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2014 Systemic Risk Centre, The London School of Economics and Political Science
Divisions: Finance
Financial Markets Group
Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
Date Deposited: 29 Aug 2014 11:50
Last Modified: 20 Oct 2021 03:04
Projects: ES/K002309/1
Funders: Economic and Social Research Council

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