nep-rmg 2005-10-29 papers

on Risk Management

Issue of 2005‒10‒29
two papers chosen by
Stan Miles
York University

Value-at-Risk Calculations with Time Varying Copulae By Enzo Giacomini; Wolfgang Härdle
On the Existence of Efficient Hedge for an American Contingent Claim: Discrete Time Market By Leonel Pérez-Hernández

Value-at-Risk Calculations with Time Varying Copulae

By:	Enzo Giacomini; Wolfgang Härdle
Abstract:	Value-at-Risk (VaR) of a portfolio is determined by the multivariate distribution of the risk factors increments. This distribution can be modelled through copulae, where the copulae parameters are not necessarily constant over time. For an exchange rate portfolio, copulae with time varying parameters are estimated and the VaR simulated accordingly. Backtesting underlines the improved performance of time varying copulae.
Keywords:	Value-at-Risk,VaR, portfolio, copulae
JEL:	C14
Date:	2005–02
URL:	http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2005-004&r=rmg

On the Existence of Efficient Hedge for an American Contingent Claim: Discrete Time Market

By:	Leonel Pérez-Hernández (School of Economics, Universidad de Guanajuato)
Abstract:	We show the existence of efficient hedge strategies for an investor facing the problem of a lack of initial capital for implementing a (super-) hedging strategy for an american contingent claim in a general incomplete market. For the optimization we consider once the maximization of the expected success ratio of the worst possible case as well as the minimization of the shortfall risk. These problems lead to stochastic games which do not need to have a value. We provide an example for this in a CRR model for an american put. Alternatively we might fix a minimal expected success ratio or a boundary for the shortfall risk and look for the minimal amount of initial capital for which there is a self-financing strategy fulfilling one or the other restriction. For all these problems we show the optimal strategy consists in hedging a modified american claim for some ``randomized test process''.
Keywords:	Partial Hedging, Efficient Hedging, Expected Loss, American Claims, Incomplete Markets, Dynamic Measures of Risk.
JEL:	C61 C73 G19
URL:	http://d.repec.org/n?u=RePEc:gua:wpaper:ec200505&r=rmg

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