May 10, 2011
from 05:00 PM to 06:00 PM
|Where||Winstanley Lecture Theatre, Trinity College|
|Contact Name||Mette Jamasb|
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Jimmy Hong (Faculty of Economics) presenting.
Title: Analytical CoVaR
Abstract: Conditional Value at Risk (CoVaR) is a newly proposed macro prudential risk measure to capture systemic risk and it is claimed to overcome some problems of traditional VaR. Accordingly, the objective of this paper is to propose an analytical form of CoVaR that shares the advantages of analytical VaR and are readily employable, then to provide a theoretical approach to investigate how analytical CoVaR captures systemic risk when asset and market
returns are independent and when they are autocorrelated. The paper presents empirical backtest using Kupiec’s failure frequency test and Christoffersen’s conditional test to find that the analytical CoVaR exceedances pass both tests while the analytical VaR exceedances does not pass the conditional test. Analytical CoES is presented as an extension to capture loss beyond CoVaR and potential applications of CoVaR are discussed.