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A Path Dependent Risk Measure in Finance
Company: Chalmers University of Technology
Year Of Publication: 2007
Month Of Publication: February
Pages: 12
Download Count: 393
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 4-14-2007
Publisher: Administrator
Summary
In this paper we introduce the path dependent risk measure Probable Maxi-mum Loss (PML) to finance. Using Extreme Value Theory, we discuss properties ofan univariate approach. We also present the methodology for a bivariate approachwhich has the flexibility to allow for different tail indices for the marginal distribu-tions. We show a close relationship between PML and Value at Risk (VaR) whichindicates that we can use PML for risk estimation purposes in situations, whereVaR may be difficult to estimate. Furthermore, we describe how to use PML inoperational risk. We demonstrate the bivariate approach in a case study to showhow risk aggregates in operational risk.
Author(s)
Brodin, Erik Sign in to follow this author
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