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Value-at-Risk Time Scaling for Long-Term Risk Estimation
Year Of Publication: 2014
Month Of Publication: August
Resource Link: Click here to open
Download Count: 0
View Count: 1537
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 8-17-2014
Publisher: Administrator
Summary
Besides the standard square-root-of-time scaling, based on normality assumptions, we consider two leptokurtic probability density function classes for fitting empirical P&L datasets and derive accurately their scaling behaviour in light of the Central Limit Theorem, interpreting time scaling as a convolution problem. Our analyses result in a range of possible VaR-scaling approaches depending on the distribution providing the best fit to empirical data, the desired percentile level and the time horizon of the Economic Capital calculation. In particular, the use of a convolution-based approach could lead to significantly larger risk measures (by up to a factor of four) than those calculated using Normal assumptions on the P&L distribution.
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Author(s)
Spadafora, Luca Sign in to follow this author
Dubrovich, Marco Sign in to follow this author
Terraneo, Marcello Sign in to follow this author
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