TITLE:
Value-at-Risk Based on Time-Varying Risk Tolerance Level
AUTHORS:
Debasish Majumder
KEYWORDS:
Value-at-Risk, Extreme Value Theory, Generalised Pareto Distribution, Tail-Related Risk Models
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.1,
January
29,
2018
ABSTRACT: The conventional
judgement-based method for fixing the risk tolerance level in the Value-at-Risk
(VaR) model might be a suboptimal method, because the procedure induces the
possibility of bias in risk measurement. Conversely, a superior risk management
practice might be one, where input parameters are determined by a quantitative
process which is “non-subjective to the risk modeller’s preferences”. Based on this insight, we have improved on the VaR model. Our model
allows time variation of the risk tolerance level and so is suitable for
scenario-wise risk analysis.