A generalized Fourier transform approach to risk measures
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Abstract: We introduce the formalism of generalized Fourier transforms in the context of risk management. We develop a general framework to efficiently compute the most popular risk measures, Value-at-Risk and Expected Shortfall (also known as Conditional Value-at-Risk). The only ingredient required by our approach is the knowledge of the characteristic function describing the financial data in use. This allows to extend risk analysis to those non-Gaussian models defined in the Fourier space, such as Levy noise driven processes and stochastic volatility models. We test our analytical results on data sets coming from various financial indexes, finding that our predictions outperform those provided by the standard Log-Normal dynamics and are in remarkable agreement with those of the benchmark historical approach.
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Cited in
(8)- On a transform method for the efficient computation of conditional V\@R (and V\@R) with application to loss models with jumps and stochastic volatility
- Risk Measures and Asset Pricing Models with New Versions of Wang Transform
- On the applicability of a Fourier based approach to integrated market and credit portfolio models
- Fourier-analytic measures for heavy-tailed insurance losses
- A new Fourier transform algorithm for value-at-risk
- Bayesian Risk Measures for Derivatives via Random Esscher Transform
- Harmonic analysis in value at risk calculations.
- Accounting for risk of non linear portfolios. A novel Fourier approach
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