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Risk management under time varying volatility and Pareto-stable distributions

Risk management under time varying volatility and Pareto-stable distributions
Risk management under time varying volatility and Pareto-stable distributions

Risk measures based on Gaussian return distributions are simple but inaccurate while such measures based on alternative methodologies are known to be more precise but complex. In this context, practitioners seem biased towards simplicity and tend to choose the inaccurate Gaussian measures, leading to unsuspected losses in the event of a negative episode. This article proposes generalized autoregressive conditional heteroskedasticity (GARCH) family models with stable Paretian innovations in measuring the value-at-risk, expected shortfall and spectral risk measures that promise a markedly improved performance while maintaining simplicity.

GARCH models, risk measures, stable Paretian distribution, stable processes
1350-4851
Mozumder, Sharif
fd0456fe-2db6-4ea2-bdf5-4f7c06761b24
Kabir, M. Humayun
9b9fd606-0033-4b16-8ccd-f2575e7aeb43
Dempsey, Michael
ac5479d6-1337-4895-94b5-033420a23af2
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728
Mozumder, Sharif
fd0456fe-2db6-4ea2-bdf5-4f7c06761b24
Kabir, M. Humayun
9b9fd606-0033-4b16-8ccd-f2575e7aeb43
Dempsey, Michael
ac5479d6-1337-4895-94b5-033420a23af2
Choudhry, Taufiq
6fc3ceb8-8103-4017-b3b5-2d38efa57728

Mozumder, Sharif, Kabir, M. Humayun, Dempsey, Michael and Choudhry, Taufiq (2019) Risk management under time varying volatility and Pareto-stable distributions. Applied Economics Letters. (doi:10.1080/13504851.2019.1612025).

Record type: Article

Abstract

Risk measures based on Gaussian return distributions are simple but inaccurate while such measures based on alternative methodologies are known to be more precise but complex. In this context, practitioners seem biased towards simplicity and tend to choose the inaccurate Gaussian measures, leading to unsuspected losses in the event of a negative episode. This article proposes generalized autoregressive conditional heteroskedasticity (GARCH) family models with stable Paretian innovations in measuring the value-at-risk, expected shortfall and spectral risk measures that promise a markedly improved performance while maintaining simplicity.

Text
Mozumder_PBS_risk_measures_Sep-2018 - Accepted Manuscript
Restricted to Repository staff only until 9 November 2020.
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More information

Accepted/In Press date: 23 January 2019
e-pub ahead of print date: 9 May 2019
Keywords: GARCH models, risk measures, stable Paretian distribution, stable processes

Identifiers

Local EPrints ID: 431596
URI: http://eprints.soton.ac.uk/id/eprint/431596
ISSN: 1350-4851
PURE UUID: a11c5dd1-7ad0-48c1-9f91-d6e67fb56d04
ORCID for Taufiq Choudhry: ORCID iD orcid.org/0000-0002-0463-0662

Catalogue record

Date deposited: 10 Jun 2019 16:30
Last modified: 24 Jul 2019 00:36

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Contributors

Author: Sharif Mozumder
Author: M. Humayun Kabir
Author: Michael Dempsey
Author: Taufiq Choudhry ORCID iD

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