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A Stochastic Dominance Approach to the Basel III Dilemma: Expected Shortfall or VaR?
Chang, C-L. / Jiménez-Martín, J.A. / McAleer, M.J. / Pérez-Amaral, T.
banking / risk managementResource overview

A Stochastic Dominance Approach to the Basel III Dilemma: Expected Shortfall or VaR?

Paper2015

by Chang, C-L., Jiménez-Martín, J.A., McAleer, M.J., Pérez-Amaral, T.

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bankingrisk managementtail risk

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Suggested foundations for risk measurement and stress and credit and counterparty risk. Specialist prerequisites vary by paper.

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  1. Random Variables and Distributions

    Represent losses as a distribution rather than one forecast.

  2. Expected Shortfall and Other Tail Risk Measures

    Distinguish a loss quantile from the average loss in the tail.

  3. Credit Instruments, PD/LGD/EAD, and Rating Migration

    Separate default probability, loss severity and exposure.

  4. Conditional Expectation

    Read conditional default and exposure quantities.

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  1. VaR Estimation in Practice: Variance-Covariance, Historical Simulation, Monte Carlo

    Compare risk estimators and their assumptions.

  2. Backtesting VaR and ES: Coverage Tests and Model Validation

    Check forecasts against realised losses.

  3. Threshold Models and the Gaussian Copula for Portfolio Default

    Study dependence between defaults.

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