Why risk is so hard to measure

Danielsson, Jon ORCID: 0009-0006-9844-7960 and Zhou, Chen (2015) Why risk is so hard to measure. Systemic Risk Centre Discussion Papers (36). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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Abstract

This paper analyzes the robustness of standard risk analysis techniques, with a special emphasis on the specifications in Basel III. We focus on the difference between Value– at–Risk and expected shortfall, the small sample properties of these risk measures and the impact of using an overlapping approach to construct data for longer holding periods. Overall, risk forecasts are extremely uncertain at low sample sizes. By comparing the estimation uncertainty, we find that Value–at–Risk is superior to expected shortfall and the time-scaling approach for risk forecasts with longer holding periods is preferable to using overlapping data.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.systemicrisk.ac.uk
Additional Information:	© 2015 The Authors
Divisions:	Systemic Risk Centre
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C10 - General C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C15 - Statistical Simulation Methods; Monte Carlo Methods; Bootstrap Methods G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation
Date Deposited:	19 May 2015 10:33
Last Modified:	01 Oct 2024 03:18
Projects:	ES/K002309/1
Funders:	Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/62002

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