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Value-at-Risk Based on Time-Varying Risk Tolerance Level
Reserve Bank of India, Kolkata, India
- 1 Reserve Bank of India, Kolkata, India
Theoretical Economics Letters·Volume 08 (2018)·Pages 111–118·Published 3 January 2018·DOI10.4236/tel.2018.81007
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Abstract
The conventional judgement-based method for fixing the risk tolerance level in the Value-at-Risk (VaR) model might be a suboptimal method, because the procedure induces the possibility of bias in risk measurement. Conversely, a superior risk management practice might be one, where input parameters are determined by a quantitative process which is “ non-subjective to the risk modeller’s preferences ” . Based on this insight, we have improved on the VaR model. Our model allows time variation of the risk tolerance level and so is suitable for scenario-wise risk analysis.
KeywordsValue-at-RiskExtreme Value TheoryGeneralised Pareto DistributionTail-Related Risk Models
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