We provide sharp analytical upper and lower bounds for value-at-risk (VaR) and sharp bounds for expected shortfall (ES) of portfolios of any dimension subject to default risk. To do so, the main methodological contribution of the paper consists in analytically finding the convex hull generators for the class of exchangeable Bernoulli variables with given mean and for the class of exchangeable Bernoulli variables with given mean and correlation in any dimension. Using these analytical results, we first describe all possible dependence structures for default, in the class of finite sequences of exchangeable Bernoulli random variables. We then measure how model risk affects VaR and ES.
Model risk in credit risk / Fontana, R.; Luciano, E.; Semeraro, P.. - In: MATHEMATICAL FINANCE. - ISSN 0960-1627. - STAMPA. - 31:1(2021), pp. 176-202. [10.1111/mafi.12285]
Model risk in credit risk
Fontana R.;Semeraro P.
2021
Abstract
We provide sharp analytical upper and lower bounds for value-at-risk (VaR) and sharp bounds for expected shortfall (ES) of portfolios of any dimension subject to default risk. To do so, the main methodological contribution of the paper consists in analytically finding the convex hull generators for the class of exchangeable Bernoulli variables with given mean and for the class of exchangeable Bernoulli variables with given mean and correlation in any dimension. Using these analytical results, we first describe all possible dependence structures for default, in the class of finite sequences of exchangeable Bernoulli random variables. We then measure how model risk affects VaR and ES.File | Dimensione | Formato | |
---|---|---|---|
Exchangeable_second_rev.pdf
Open Access dal 18/08/2022
Tipologia:
2. Post-print / Author's Accepted Manuscript
Licenza:
Non Pubblico - Accesso privato/ristretto
Dimensione
659.02 kB
Formato
Adobe PDF
|
659.02 kB | Adobe PDF | Visualizza/Apri |
Mathematical Finance - 2020 - Fontana - Model risk in credit risk.pdf
accesso riservato
Tipologia:
2a Post-print versione editoriale / Version of Record
Licenza:
Non Pubblico - Accesso privato/ristretto
Dimensione
663.68 kB
Formato
Adobe PDF
|
663.68 kB | Adobe PDF | Visualizza/Apri Richiedi una copia |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
https://hdl.handle.net/11583/2843152