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Upper Bounds on Value-at-Risk for the Maximum Portfolio Loss
Company: Extremes
Company Url: Click here to open
Year Of Publication: 2014
Month Of Publication: August
Resource Link: Click here to open
Download Count: 0
View Count: 1483
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 8-11-2014
Publisher: Administrator
Summary
Extremal dependence of the losses in a portfolio is one of the most important features that should be accounted for when estimating Value-at-Risk (VaR) at high levels. Multivariate extreme value theory provides a principled framework for the modeling and estimation of extremal dependence. We propose to represent extremal dependence of a multivariate portfolio via the so–called Tawn–Molchanov (TM) model, which is finite dimensional.Every max–stable random vector X can be associated with a TM max-stable vector Y = TM(X) so that the extremal coefficients of X and Y match and at the same time Y stochastically dominates X in the lower orthant order. This result readily yields an optimal upper bound on the value-at-risk.
Author(s)
Yuen, Robert Sign in to follow this author
Stoev, Stilian Sign in to follow this author
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