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Expected Shortfall and Value-at-Risk under a Model with Market Risk and Credit Risk
Company: University of Hong Kong
Year Of Publication: 2006
Month Of Publication: October
Pages: 106
Download Count: 27
View Count: 1832
Comment Num: 0
Language: English
Source: thesis
Who Can Read: Free
Date: 10-2-2010
Publisher: Administrator
Summary
A model which takes care of both market and credit risks was presented.
A surplus process was proposed which models the credit risk component by a first order Markov chain on Standard and Poor's credit ratings. Under the Markovian regime switching setup, various risk measures have been considered. Risk measures including natural value at risk and expected shortfall were reviewed and adopted. A risk measure called n-period value at risk which is more conservative than the natural value at risk has also been proposed. Recursive equations were developed for these risk measures. In order to deal with some kind of dependency on the credit risks, a weak Markov chain was attempted to model the credit rating dynamics in the surplus process. A weak Markov chain is a Markov chain in which transition depends on two or more transition histories. In particular, a second order Markov model was considered for the sake of simplicity. Second order transition probabilities, transition matrix, and transition states have been re-estimated and restated to cope with the dependency structure. The surplus process and recursive equations have also been red
Author(s)
Siu, Kin Bong Bonny Sign in to follow this author
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