Financial Risk Measurement for Financial Risk Management

Torben G. Andersen, Tim Bollerslev, Peter Christoffersen, Francis X. Dieboldd

Research output: Chapter in Book/Report/Conference proceedingBook chapterResearchpeer-review

Abstract

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfolio-level and asset-level analysis. Asset-level analysis is particularly challenging because the demands of real-world risk management in financial institutions—in particular, real-time risk tracking in very high-dimensional situations—impose strict limits on model complexity. Hence we stress powerful yet parsimonious models that are easily estimated. In addition, we emphasize the need for deeper understanding of the links between market risk and macroeconomic fundamentals, focusing primarily on links among equity return volatilities, real growth, and real growth volatilities. Throughout, we strive not only to deepen our scientific understanding of market risk, but also cross-fertilize the academic and practitioner communities, promoting improved market risk measurement technologies that draw on the best of both.
Original languageEnglish
Title of host publicationHandbook of the Economics of Finance
EditorsGeorge M. Constantinides, Milton Harris, Rene M. Stulz
Volume2, Part B
Place of PublicationAmsterdam
PublisherNorth-Holland
Publication date2013
Pages1127–1220
Chapter17
ISBN (Print)9780444594167
DOIs
Publication statusPublished - 2013
Externally publishedYes

Cite this

Andersen, T. G., Bollerslev, T., Christoffersen, P., & Dieboldd, F. X. (2013). Financial Risk Measurement for Financial Risk Management. In G. M. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the Economics of Finance (Vol. 2, Part B, pp. 1127–1220). North-Holland. https://doi.org/10.1016/B978-0-44-459406-8.00017-2