The estimation and decomposition of value-at-risk for non-normal portfolio returns
Value-at-risk (VaR) is a widely used measure for evaluating the market risk of a trading portfolio. This article presents the g-and-h method for estimating the VaR of a portfolio with non-normal returns, and adds to the usefulness of VaR as a risk management tool by decomposing the portfolio into in...
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| Format: | Article |
| Language: | English |
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Vilnius Gediminas Technical University
2013-12-01
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| Series: | Journal of Business Economics and Management |
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| Online Access: | https://journals.vgtu.lt/index.php/JBEM/article/view/3771 |
| _version_ | 1818890587112210432 |
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| author | Doowoo Nam |
| author_facet | Doowoo Nam |
| author_sort | Doowoo Nam |
| collection | DOAJ |
| description | Value-at-risk (VaR) is a widely used measure for evaluating the market risk of a trading portfolio. This article presents the g-and-h method for estimating the VaR of a portfolio with non-normal returns, and adds to the usefulness of VaR as a risk management tool by decomposing the portfolio into individual VaRs to estimate the contribution of the individual components toward the overall VaR. While the VaR decomposition is algebraically simple under the assumption of normality, that is not the case under non-normality which is the property exhibited by most financial returns. We show that, by using the g-and-h VaR method, the decomposition analysis under non-normality can be performed with the same degree of intuitiveness and ease as for the analytical methods based on the assumption of normality.
First published online: 16 Jan 2013 |
| first_indexed | 2024-12-19T17:27:17Z |
| format | Article |
| id | doaj.art-e15e857c9b5d459689597a4d9fe9c724 |
| institution | Directory Open Access Journal |
| issn | 1611-1699 2029-4433 |
| language | English |
| last_indexed | 2024-12-19T17:27:17Z |
| publishDate | 2013-12-01 |
| publisher | Vilnius Gediminas Technical University |
| record_format | Article |
| series | Journal of Business Economics and Management |
| spelling | doaj.art-e15e857c9b5d459689597a4d9fe9c7242022-12-21T20:12:32ZengVilnius Gediminas Technical UniversityJournal of Business Economics and Management1611-16992029-44332013-12-0114110.3846/16111699.2012.703147The estimation and decomposition of value-at-risk for non-normal portfolio returnsDoowoo Nam0College of Business Administration, Inha University, Nam-gu, Yonghyun-dong 253, Incheon, Korea 402-751Value-at-risk (VaR) is a widely used measure for evaluating the market risk of a trading portfolio. This article presents the g-and-h method for estimating the VaR of a portfolio with non-normal returns, and adds to the usefulness of VaR as a risk management tool by decomposing the portfolio into individual VaRs to estimate the contribution of the individual components toward the overall VaR. While the VaR decomposition is algebraically simple under the assumption of normality, that is not the case under non-normality which is the property exhibited by most financial returns. We show that, by using the g-and-h VaR method, the decomposition analysis under non-normality can be performed with the same degree of intuitiveness and ease as for the analytical methods based on the assumption of normality. First published online: 16 Jan 2013https://journals.vgtu.lt/index.php/JBEM/article/view/3771portfolio VaRg-and-h distributionVaR decompositionmarginal VaRcomponent VaR |
| spellingShingle | Doowoo Nam The estimation and decomposition of value-at-risk for non-normal portfolio returns Journal of Business Economics and Management portfolio VaR g-and-h distribution VaR decomposition marginal VaR component VaR |
| title | The estimation and decomposition of value-at-risk for non-normal portfolio returns |
| title_full | The estimation and decomposition of value-at-risk for non-normal portfolio returns |
| title_fullStr | The estimation and decomposition of value-at-risk for non-normal portfolio returns |
| title_full_unstemmed | The estimation and decomposition of value-at-risk for non-normal portfolio returns |
| title_short | The estimation and decomposition of value-at-risk for non-normal portfolio returns |
| title_sort | estimation and decomposition of value at risk for non normal portfolio returns |
| topic | portfolio VaR g-and-h distribution VaR decomposition marginal VaR component VaR |
| url | https://journals.vgtu.lt/index.php/JBEM/article/view/3771 |
| work_keys_str_mv | AT doowoonam theestimationanddecompositionofvalueatriskfornonnormalportfolioreturns AT doowoonam estimationanddecompositionofvalueatriskfornonnormalportfolioreturns |