This article reviews two leading measures of financial risk and an emerging alternative. Embraced by the Basel accords, value-at-risk and expected shortfall are the leading measures of financial risk. Expectiles offset the weaknesses of value-at-risk (VaR) and expected shortfall. Indeed,...

A functional ARMA-GARCH model for predicting the value-at-risk of the EURUSD exchange rate is introduced. The model implements the yield curve differentials between EUR and the US as exogenous factors. Functional principal component analysis allows us to use the information of basically the...

We analyse four stochastic claims reserving methods in terms of their capability to estimate reserve risk and how successful they are at predicting distributions and VaRs of claim developments in particular. Both actual data and hypothetical claim triangles support our results. The...

A spectrum of upper bounds (Qα(X ; p) ae[0,∞] on the (largest) (1-p)-quantile Q(X;p) of an arbitrary random variable X is introduced and shown to be stable and monotonic in α, p, and X , with Q0(X ;p) = Q(X;p). If p is small enough and the distribution of X is regular enough, then Qα(X ; p)...

The literature on capital allocation is biased towards an asset modeling framework rather than an actuarial framework. The asset modeling framework leads to the proliferation of inappropriate assumptions about the effect of insurance line of business growth on aggregate loss distributions. This...

In this paper, we employ 99% intraday value-at-risk (VaR) and intraday expected shortfall (ES) as risk metrics to assess the competency of the Multiplicative Component Generalised Autoregressive Heteroskedasticity (MC-GARCH) models based on the 1-min EUR/USD exchange rate returns. Five...

One of the key components of counterparty credit risk (CCR) measurement is generating scenarios for the evolution of the underlying risk factors, such as interest and exchange rates, equity and commodity prices, and credit spreads. Geometric Brownian Motion (GBM) is a widely used method for...

One of the key components of financial risk management is risk measurement. This typically requires modeling, estimating and forecasting tail-related quantities of the asset returns’ conditional distribution. Recent advances in the financial econometrics literature have developed several...

Credit risk is a critical issue that affects banks and companies on a global scale. Possessing the ability to accurately predict the level of credit risk has the potential to help the lender and borrower. This is achieved by alleviating the number of loans provided to borrowers with poor...