Fair estimation of capital risk allocation

DOI10.1515/STRM-2019-0011zbMATH Open1436.62487arXiv1902.10044OpenAlexW3007346650MaRDI QIDQ2173274FDOQ2173274

Authors: Yanyan Li 

Publication date: 22 April 2020

Published in: Statistics \& Risk Modeling (Search for Journal in Brave)

Abstract: In this paper we develop a novel methodology for estimation of risk capital allocation. The methodology is rooted in the theory of risk measures. We work within a general, but tractable class of law-invariant coherent risk measures, with a particular focus on expected shortfall. We introduce the concept of fair capital allocations and provide explicit formulae for fair capital allocations in case when the constituents of the risky portfolio are jointly normally distributed. The main focus of the paper is on the problem of approximating fair portfolio allocations in the case of not fully known law of the portfolio constituents. We define and study the concepts of fair allocation estimators and asymptotically fair allocation estimators. A substantial part of our study is devoted to the problem of estimating fair risk allocations for expected shortfall. We study this problem under normality as well as in a nonparametric setup. We derive several estimators, and prove their fairness and/or asymptotic fairness. Last, but not least, we propose two backtesting methodologies that are oriented at assessing the performance of the allocation estimation procedure. The paper closes with a substantial numerical study of the subject.

Full work available at URL: https://arxiv.org/abs/1902.10044

Recommendations

• A generalization of expected shortfall based capital allocation
• Properties and comparison of risk capital allocation methods
• Excess based allocation of risk capital
• scientific article; zbMATH DE number 2151372
• Risk capital allocation by coherent risk measures based on one-sided moments.

zbMATH Keywords

expected shortfallrisk measuresvalue-at-riskcapital allocationtail-value-at-riskasymptotic fairnessbacktesting capital allocationEuler principlefair capital allocation

Mathematics Subject Classification ID

Nonparametric estimation (62G05) Applications of statistics to actuarial sciences and financial mathematics (62P05) Credit risk (91G40) Risk models (general) (91B05)

Cites Work

• Elicitability and backtesting: perspectives for banking regulation
• Coherent measures of risk
• Coherence and elicitability
• Quantitative risk management. Concepts, techniques and tools
• Stochastic finance. An introduction in discrete time.
• Title not available (Why is that?)
• AN AXIOMATIC APPROACH TO CAPITAL ALLOCATION
• The asymptotic distribution of the trimmed mean
• Title not available (Why is that?)
• Weighted V\@R and its properties
• On Kusuoka representation of law invariant risk measures
• To split or not to split: Capital allocation with convex risk measures
• Title not available (Why is that?)
• A dynamic model of central counterparty risk

Cited In (8)

• Estimating the VaR-induced Euler allocation rule
• A generalization of expected shortfall based capital allocation
• Extremes for coherent risk measures
• Financial fairness and conditional indexation
• How should the cost of joint risk capital be allocated for performance measurement?
• Excess based allocation of risk capital
• Weighted risk capital allocations
• An efficient approach to quantile capital allocation and sensitivity analysis

Uses Software

• QRM

This page was built for publication: Fair estimation of capital risk allocation

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2173274)