The Basel 2 Accord requires regulatory capital to cover stress tests, yet no coherent and objective framework for stress testing portfolios exists. We propose a new methodology for stress testing in the context of market risk models that can incorporate both volatility clustering and heavy...

Various risk estimation methods have been proposed in response to evidence that risk is changing. We investigate the effect of alternative risk-estimation methods in the context of asset-allocation decisions that seek to minimize portfolio risk. The risk measures considered include the...