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1. Introduction
2. Key Points
3. What is financial risk?
4. Formula for pdf
5. Graph of standard normal pdf
6. Interpretation of normal pdf
7. Attractions of normality
8. Moments of pdf
9. Skewness defined
10. Graph of skewed distribution
11. Kurtosis defined
12. Illustration of Kurtosis
13. Standard deviation as a risk measure
14. Value at Risk (VaR) - defined
15. First Illustration of VaR
16. Second illustration of VaR
17. VaR and confidence level
18. VaR and holding period
19. VaR surface
20. How to choose a confidence level
21. How to choose a holding period
22. Limitations of VaR
23. VaR is uninformative of tail losses
24. VaR creates perverse incentives
25. VaR can discourage diversification
26. Subadditivity and VaR
27. VaR is not subadditive
28. Example of VaR non subadditivity
29. Coherent risk measures
30. Coherence properties
31. Expected Shortfall (ES)
32. ES and VaR compared
33. Why ES is better than VaR
34. Worst-case scenario analysis
35. Conclusions
36. References

Topics Covered

• Nature of financial risk
• Representing financial risk using a density function
• VaR as a risk measure
• Expected shortfall
• Coherent risk measures
• Worst-case scenario analyses

Links

Series:

• Quantitative Financial Risk Management

Categories:

• Finance, Accounting & Economics

Talk Citation

Publication History

• Published on October 1, 2007
• Archived on April 4, 2022