Physics – Physics and Society
Scientific paper
2006-07-27
Physics
Physics and Society
revtex4, 10 pages, 3 figures, proceeding of Apfa5 Conference
Scientific paper
Reliable calculations of financial risk require that the fat-tailed nature of prices changes is included in risk measures. To this end, a non-Gaussian approach to financial risk management is presented, modeling the power-law tails of the returns distribution in terms of a Student-$t$ (or Tsallis) distribution. Non-Gaussian closed-form solutions for Value-at-Risk and Expected Shortfall are obtained and standard formulae known in the literature under the normality assumption are recovered as a special case. The implications of the approach for risk management are demonstrated through an empirical analysis of financial time series from the Italian stock market. Detailed comparison with the results of the widely used procedures of quantitative finance, such as parametric normal approach, RiskMetrics methodology and historical simulation, as well as with previous findings in the literature, are shown and commented. Particular attention is paid to quantify the size of the errors affecting the risk measures obtained according to different methodologies, by employing a bootstrap technique.
Bormetti Giacomo
Cisana E.
Montagna Guido
Nicrosini Oreste
No associations
LandOfFree
Risk measures with non-Gaussian fluctuations does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.
If you have personal experience with Risk measures with non-Gaussian fluctuations, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Risk measures with non-Gaussian fluctuations will most certainly appreciate the feedback.
Profile ID: LFWR-SCP-O-250564