The worst possible Value-at-Risk for a non-decreasing function ψ of n dependent risks is known when n = 2 or the copula of the portfolio is bounded from below. In this paper we analyze the properties of the dependence structures leading to this solution, in particular their form and the implied functional dependence between the marginals. Furthermore, we criticise the assumption of the worst possible scenario for VaR-based risk management and we provide an alternative approach supporting comonotonicity.
Worst VaR scenarios / P. Embrechts, A. Höing, G. Puccetti. - In: INSURANCE MATHEMATICS & ECONOMICS. - ISSN 0167-6687. - 37:1(2005), pp. 115-134. ((Intervento presentato al convegno International Conference on Dependence Modelling - Statistical Theory and Applications in Finance and Insurance (DeMoSTAFI) tenutosi a Quebec City nel 2004.
Worst VaR scenarios
G. PuccettiUltimo
2005
Abstract
The worst possible Value-at-Risk for a non-decreasing function ψ of n dependent risks is known when n = 2 or the copula of the portfolio is bounded from below. In this paper we analyze the properties of the dependence structures leading to this solution, in particular their form and the implied functional dependence between the marginals. Furthermore, we criticise the assumption of the worst possible scenario for VaR-based risk management and we provide an alternative approach supporting comonotonicity.
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