scholarly journals Modeling Expected Shortfall Using Tail Entropy

Entropy ◽  
2019 ◽  
Vol 21 (12) ◽  
pp. 1204
Author(s):  
Daniel Traian Pele ◽  
Emese Lazar ◽  
Miruna Mazurencu-Marinescu-Pele
Keyword(s):  
At Risk ◽  
Information Entropy ◽  
Value At Risk ◽  
Expected Shortfall ◽  
Standard Measure ◽  
Banking Supervision ◽  
Smoothing Techniques ◽  
Basel Committee ◽  
Regulatory Standard ◽  
Tail Measure

Given the recent replacement of value-at-risk as the regulatory standard measure of risk with expected shortfall (ES) undertaken by the Basel Committee on Banking Supervision, it is imperative that ES gives correct estimates for the value of expected levels of losses in crisis situations. However, the measurement of ES is affected by a lack of observations in the tail of the distribution. While kernel-based smoothing techniques can be used to partially circumvent this problem, in this paper we propose a simple nonparametric tail measure of risk based on information entropy and compare its backtesting performance with that of other standard ES models.

Expected shortfall or median shortfall

2014 ◽  
Vol 01 (01) ◽  
pp. 1450007 ◽  
Author(s):  
Steven Kou ◽  
Xianhua Peng
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Measure ◽  
Model Misspecification ◽  
Capital Requirements ◽  
Expected Shortfall ◽  
Banking Supervision ◽  
Tail Risk ◽  
Basel Committee ◽  
Distributional Robustness

In a recent consultative document, the Basel Committee on Banking Supervision suggests replacing Value-at-Risk (VaR) by expected shortfall (ES) for setting capital requirements for banks' trading books because ES better captures tail risk than VaR. However, besides ES, another risk measure called median shortfall (MS) also captures tail risk by taking into account both the size and likelihood of losses. We argue that MS is a better alternative than ES as a risk measure for setting capital requirements because: (i) MS is elicitable but ES is not; (ii) MS has distributional robustness with respect to model misspecification but ES does not; (iii) MS is easy to implement but ES is not.

scholarly journals THE PERSISTENCY AND THE SUSTAINABILITY OF THE INDONESIA'S CURRENT ACCOUNT DEFICIT

2015 ◽  
Vol 17 (3) ◽  
pp. 315-338
Author(s):  
Tuti Eka Asmarani
Keyword(s):  
Risk Assessment ◽  
At Risk ◽  
Value At Risk ◽  
Current Account Deficit ◽  
Balance Sheet ◽  
Expected Shortfall ◽  
Jel Classification ◽  
Small Enterprise ◽  
Basel Committee ◽  
Market Risks

Asian and European crises were witnesses of banks’ vulnerable due to market risks. The Basel Committee requires an internal risk assessment applying Value at Risk (VaR). However, a replacement of VaR with Expected Shortfall (ES) has been suggested recently due to an excessive losses produced by banks which are beyond VaR estimations. This paper studied the risk of Indonesian banks applying a historical expected shortfall. We used JIBOR (overnight) from 2009 – 2012 as a proxy of market risk. The assessment of a historical expected shortfall of the net position of 27 banks accounts for October 2012 showed that state owned banks placed among the five highest value of each component (net position) in the balance sheet, namely placement to Bank Indonesia, interbank placement, spot and derivatives claims, securities, and loans. It means that the state owned banks had the highest risk and were the most aggressive among Indonesian banks. It might be due to carrying some of the government’s program, such as small enterprise loans.  Keywords: expected shortfall, value at risk, banks, risk. JEL Classification: D81, G210

scholarly journals RISK OF INDONESIAN BANKS: AN APPLICATION OF HISTORICAL EXPECTED SHORTFALL METHOD

2015 ◽  
Vol 17 (3) ◽  
pp. 299-314
Author(s):  
Nevi Danila ◽  
Bunyamin Bunyamin ◽  
Siti Munfaqiroh
Keyword(s):  
Risk Assessment ◽  
At Risk ◽  
Value At Risk ◽  
Balance Sheet ◽  
Market Risk ◽  
Expected Shortfall ◽  
Jel Classification ◽  
Small Enterprise ◽  
Basel Committee ◽  
Market Risks

Asian and European crises were witnesses of banks’ vulnerable due to market risks. The Basel Committee requires an internal risk assessment applying Value at Risk (VaR). However, a replacement of VaR with Expected Shortfall (ES) has been suggested recently due to an excessive losses produced by banks which are beyond VaR estimations. This paper studied the risk of Indonesian banks applying a historical expected shortfall. We used JIBOR (overnight) from 2009 – 2012 as a proxy of market risk. The assessment of a historical expected shortfall of the net position of 27 banks accounts for October 2012 showed that state owned banks placed among the five highest value of each component (net position) in the balance sheet, namely placement to Bank Indonesia, interbank placement, spot and derivatives claims, securities, and loans. It means that the state owned banks had the highest risk and were the most aggressive among Indonesian banks. It might be due to carrying some of the government’s program, such as small enterprise loans. Keywords: expected shortfall, value at risk, banks, risk. JEL Classification: D81, G210

scholarly journals Computing value-at-risk and expected shortfall in operational risk

2021 ◽  
Author(s):  
Desire Issiaka Bakassa-Traore
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Measures ◽  
Operational Risk ◽  
Expected Shortfall ◽  
Conditional Value At Risk ◽  
Basel Committee ◽  
Loss Distribution Approach ◽  
Capital Charge ◽  
Heavy Tailed

Operational Risk has become more popular in the past fifteen years. The Basel committee realized its importance and banks have to allocate more capital charge, yet this is still not enough. With these new rules, banks have put in place new procedures to compute their risk measures and allocate enough capital charge to avoid bankruptcy. The Basel committee under Basel II has proposed different approaches to compute risk measures for Operational Risk, namely the Basic Indicator Approach, the Advanced Measurement Approach and the Standardized Approach. In our research, we will study the case of Loss Distribution Approach, which has been discussed before, and will contribute to the field by using a heavy-tailed distributed severity: g-and-h distributed. Then, we will analyze and test some methods to compute the value-at-risk( VaR) and conditional value-at-risk or expected shortfall (CVaR).

scholarly journals Computing value-at-risk and expected shortfall in operational risk

2021 ◽  
Author(s):  
Desire Issiaka Bakassa-Traore
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Risk Measures ◽  
Operational Risk ◽  
Expected Shortfall ◽  
Conditional Value At Risk ◽  
Basel Committee ◽  
Loss Distribution Approach ◽  
Capital Charge ◽  
Heavy Tailed

Operational Risk has become more popular in the past fifteen years. The Basel committee realized its importance and banks have to allocate more capital charge, yet this is still not enough. With these new rules, banks have put in place new procedures to compute their risk measures and allocate enough capital charge to avoid bankruptcy. The Basel committee under Basel II has proposed different approaches to compute risk measures for Operational Risk, namely the Basic Indicator Approach, the Advanced Measurement Approach and the Standardized Approach. In our research, we will study the case of Loss Distribution Approach, which has been discussed before, and will contribute to the field by using a heavy-tailed distributed severity: g-and-h distributed. Then, we will analyze and test some methods to compute the value-at-risk( VaR) and conditional value-at-risk or expected shortfall (CVaR).

Sign in / Sign up

Export Citation Format

Share Document