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Estimating Value at Risk A Subjective Approach

Estimating Value at Risk A Subjective Approach This article outlines a subjective approach to estimating value at risk VaR and its related confidence intervals based on priors of the profitloss distribution and its parameters. In the tradition of Bayesian statistics, this produces probability density functions for VaR that allow for subjective uncertainty. The author shows that implementing this approach can be intuitive, straightforward, and applicable to any parametric VaR. One of the more difficult issues in this area is how to assess the precision of estimates VaR estimation is usually straightforward, but estimating a confidence interval for a VaR estimate is not. This article suggests that, by inferring VaR from prior beliefs, rather than thinking of VaR as dependent on an objective PL distribution, interpreting estimated confidence intervals is less problematic http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Risk Finance Emerald Publishing

Estimating Value at Risk A Subjective Approach

DOWD, KEVIN
The Journal of Risk Finance , Volume 1 (4): 4 – Mar 1, 2000
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References (3)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1526-5943
DOI
10.1108/eb043454
Publisher site
See Article on Publisher Site

Abstract

This article outlines a subjective approach to estimating value at risk VaR and its related confidence intervals based on priors of the profitloss distribution and its parameters. In the tradition of Bayesian statistics, this produces probability density functions for VaR that allow for subjective uncertainty. The author shows that implementing this approach can be intuitive, straightforward, and applicable to any parametric VaR. One of the more difficult issues in this area is how to assess the precision of estimates VaR estimation is usually straightforward, but estimating a confidence interval for a VaR estimate is not. This article suggests that, by inferring VaR from prior beliefs, rather than thinking of VaR as dependent on an objective PL distribution, interpreting estimated confidence intervals is less problematic

Journal

The Journal of Risk Finance – Emerald Publishing

Published: Mar 1, 2000

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