Comparison of risk measures: Value at risk versus expected shortfall

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en
dc.contributor.author Uimonen, Tommi
dc.date.accessioned 2016-08-16T11:35:46Z
dc.date.available 2016-08-16T11:35:46Z
dc.date.issued 2013
dc.identifier.uri https://aaltodoc.aalto.fi/handle/123456789/21320
dc.description.abstract Research objectives Value at risk has become the standard risk measure of financial institutions during the past twenty years. After the unsuccessful revision of the regulative market risk framework, which was initiated after the financial crisis of 2007-2008, Basel Committee proposed switching the market risk measure from value at risk to expected shortfall. The objective of this thesis is to compare the two different risk measures, value at risk and expected shortfall, with each other. The main research question is: should value at risk be replaced by expected shortfall in banking regulation? The backtesting procedure is probably the most important aspect of this comparison and will be highlighted in the thesis. Research methods and data Both theoretical properties and practical issues are reviewed. The theoretical properties are discussed in a literature review, which aims to compile a summary of the strengths and weaknesses of the risk measures and explain the highly technical details of the risk measures in plain language. The practical issues are studied in an empirical research conducted with the daily closing values of Nokia's stock price and Euro Stoxx 50 index price. The daily risk estimates are calculated and the estimates are then backtested on yearly level. Two different years, 2005 with low market volatility and 2008 with high market volatility, are the backtested years. Main findings Expected shortfall has some theoretical properties which make it preferable to value at risk in perfect conditions. However, these conditions are seldom fulfilled in the markets. In practice, the robustness of value at risk makes it the more suitable option for banking regulation. Especially the superiorly effective backtesting of value at risk estimates will most likely prevent the move to expected shortfall. en
dc.format.extent 61
dc.language.iso en en
dc.title Comparison of risk measures: Value at risk versus expected shortfall en
dc.type G2 Pro gradu, diplomityö fi
dc.contributor.school Kauppakorkeakoulu fi
dc.contributor.school School of Business en
dc.contributor.department Taloustieteen laitos fi
dc.contributor.department Department of Economics en
dc.subject.keyword risk management
dc.subject.keyword value at risk
dc.subject.keyword expected shortfall
dc.identifier.urn URN:NBN:fi:aalto-201609083534
dc.type.dcmitype text en
dc.programme.major Kansantaloustiede fi
dc.programme.major Economics en
dc.type.ontasot Pro gradu tutkielma fi
dc.type.ontasot Master's thesis en
dc.subject.helecon taloustieteet
dc.subject.helecon economic science
dc.subject.helecon riskienhallinta
dc.subject.helecon risk management
dc.subject.helecon arvoanalyysi
dc.subject.helecon value analysis
dc.ethesisid 14498
dc.date.dateaccepted 2013-03-08
dc.location P1 I


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