Measuring Potential Market Risk

Measuring potential market risk

The difference between market risk and potential market risk is emphasized and a measure of the latter risk is proposed. Specifically, it is argued that the spectrum of smooth Lyapunov exponents can be utilized in what we call (λ, σ)-analysis, which is a method to monitor the aforementioned risk measures. The reason is that these exponents focus on the stability properties (λ) of the stochastic...

Measuring the Asymmetry of Stock Market Risk

Portfolio and asset pricing theory use symmetric volatility measures to evaluate risk. We propose a method to isolate the risk that the portfolio suffers a loss, separate from the risk that the portfolio reaps uncommon gains. Specifically we take advantage of the one-sided nature of option payments and show how downside risk will only affect the value of a put option (with correctly specified s...

Measuring Market Liquidity Risk - Which Model Works

Measuring Traded Market Risk: Value-at-risk and Backtesting Techniques

The views expressed in this paper are those of the authors and do not necessarily reflect those of the Reserve Bank of Australia. A number of people (both within the Reserve Bank and from other banks) provided useful comments. We are particularly grateful to Phil Lowe, Brian Gray and the bank that provided the data for testing.

Measuring Intra-Daily Market Risk: A Neural Network Approach

The value at risk (VaR) measure often relies on an assumption about the return (or price) distribution of the underlying risky assets. Different distributional assumptions may produce widely different computed VaR values. When estimating VaR using intra-daily equity returns, the question arises as to what assumption should be made about the return distribution. Because of the difficulty of deco...