http://repub.eur.nl/res/aut/7517/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/37654/ 2012-09-19T00:00:00Z Financial institutions rely heavily on Value-at-Risk (VaR) as a risk measure, even though it is not globally subadditive. First, we theoretically show that the VaR portfolio measure is subadditive in the relevant tail region if asset returns are multivariate regularly varying, thus allowing for dependent returns. Second, we note that VaR estimated from historical simulations may lead to violations of subadditivity. This upset of the theoretical VaR subadditivity in the tail arises because the coarseness of the empirical distribution can affect the apparent fatness of the tails. Finally, we document a dramatic reduction in the frequency of subadditivity violations, by using semi-parametric extreme value techniques for VaR estimation instead of historical simulations. http://repub.eur.nl/res/pub/12365/ 2006-08-01T00:00:00Z In this paper we study some prominent downside risk measures for heavy tailed distribution. Using the notion of regular variation to define heavy tailed distributions we provide approximations of the risk measures in the tail region. We show that the downside risk measures produce similar and consistent ranking of risk. However, Expected Shortfall may not always distinguish between the differing risk levels of assets. http://repub.eur.nl/res/pub/12383/ 2002-07-30T00:00:00Z Under the new Capital Accord, banks choose between two different types of risk management systems, the standard or the internal rating based approach. The paper considers how a bank's preference for a risk management system is affected by the presence of supervision by bank regulators. The model uses a principal–agent setting between a bank's owner and its risk management. The main conclusion is that previously unregulated institutions can be expected to switch to the lower quality standard approach subsequent to becoming regulated, i.e., the presence of regulation may induce a bank to decrease the quality of its risk management system. http://repub.eur.nl/res/pub/6840/ 2001-10-09T00:00:00Z Under the new Capital Accord banks can choose between different type of risk management systems. Using a stylized model of risk management systems which differ in quality and by modelling the relationship between the bank board and the risk manager, we consider the incentives for the adoption of a particular system. We show that in some cases banks may adversely adopt an unsophisticated risk management system in order to evade regulation. http://repub.eur.nl/res/pub/6860/ 2001-06-30T00:00:00Z We derive, in a complete markets environment, an investor's optimal portfolio allocation subject to both a budget constraint and a probabilistic risk constraint. We demonstrate that the set of feasible portfolios need not be connected or convex, while the number of local optima increases exponentially with the number of securities implying that finding the optimal portfolio is computationally complex (NP hard). The resulting optimal portfolio allocation may not be monotonic in the state-price density. A novel type of financial innovation, which splits states of nature, is shown to weakly enhance welfare, restore monotonicity in the state-price density, and may reduce complexity. http://repub.eur.nl/res/pub/12474/ 1998-01-01T00:00:00Z Discusses the issues in value-at-risk modeling and evaluation. Value of value at risk; Horizon problems and extreme events in financial risk management; Methods of evaluating value-at-risk estimates.