Concentration Risk: The Comparison of the Ad-Hoc Approach Indexes

Abstract

During the last subprime crisis, the concentration risk issue has become increasingly important in the world of finance. This risk is defined as the loss that we can get from a large exposition of a single name counterparty, a sector or a product. This paper represents some mathematical models for evaluating and quantifying the concentration risk under the Ad-Hoc approaches. This study is based on indexes developed by the theory of inequality and the theory of industrial concentration. This work is about the comparison between these measurements to get which one fits most the financial context. We have selected a set of concentration indexes than we have implemented an empirical test. We propose also a new concentration index. As a result, we shortlist three competitive indexes.