Estimation and decomposition of downside risk for portfolios with non-normal returns

Boudt, Kris, Peterson, Brian and Croux, Christophe (2007): Estimation and decomposition of downside risk for portfolios with non-normal returns. Unpublished.

Abstract

We propose a new estimator for Expected Shortfall that uses asymptotic expansions to account for the asymmetry and heavy tails in financial returns. We provide all the necessary formulas for decomposing estimators of Value at Risk and Expected Shortfall based on asymptotic expansions and show that this new methodology is very useful for analyzing and predicting the risk properties of portfolios of alternative
investments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Alternative investments; Component Value at Risk; Cornish-Fisher expansion; downside risk; expected shortfall; portfolio; risk contribution; Value at Risk.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods: General > C13 - Estimation; C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models; G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions