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Erschienen in:
2007 | OriginalPaper | Buchkapitel
Expected Shortfall Under a Model With Market and Credit Risks
verfasst von : Kin Bong Siu, Hailiang Yang
Erschienen in: Hidden Markov Models in Finance
Verlag: Springer US
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Value-at-Risk (VaR), due to its simplicity and ease of interpretability, has become a popular risk measure in finance nowadays. However, recent research find that VaR is not a coherent risk measure and cannot incorporate the loss beyond VaR or tail risk. This chapter considers expected shortfall (ES) as an alternative risk measure. We consider a portfolio subject to both market and credit risks. We model the credit rating using a Markov chain. Thus our model can be treated as a Markovian regime-switching model. We also propose a weak Markov chain model which can take into account the dependency of the risks. Expressions for VaR, ES and numerical results are presented to illustrate the proposed ideas.