CVaR sensitivity with respect to tail thickness

Stoyan V. Stoyanov, Svetlozar T. Rachev, Frank J. Fabozzi

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

The sensitivity of a risk measure with respect to the parameters of the hypothesized distribution is a useful tool in investigating the impact of marginal rebalancing decisions on the portfolio return distribution and also in the analysis of the asymptotic variability of the risk estimator. We calculate the relative importance of the conditional value-at-risk (CVaR) sensitivity with respect to tail thickness and scale of the portfolio return distribution in the case of regularly varying tails and in the case of exponential and faster-than-exponential decay. We discuss the implications for asset return modeling and the asymptotic variability of the risk estimator.

Original languageEnglish
Pages (from-to)977-988
Number of pages12
JournalJournal of Banking and Finance
Volume37
Issue number3
DOIs
StatePublished - Mar 2013

Keywords

  • Asymptotic variability
  • Conditional value-at-risk
  • Fat-tailed distributions
  • Marginal rebalancing
  • Regularly varying tails

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