Estimating Portfolio Risk for Tail Risk Protection Strategies

Happersberger, David and Lohre, Harald and Nolte, Ingmar (2020) Estimating Portfolio Risk for Tail Risk Protection Strategies. European Financial Management, 26 (4). pp. 1107-1146. ISSN 1354-7798

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We forecast portfolio risk for managing dynamic tail risk protection strategies, based on extreme value theory, expectile regression, Copula-GARCH and dynamic GAS models. Utilizing a loss function that overcomes the lack of elicitability for Expected Shortfall, we propose a novel Expected Shortfall (and Value-at-Risk) forecast combination approach, which dominates simple and sophisticated standalone models as well as a simple average combination approach in modelling the tail of the portfolio return distribution. While the associated dynamic risk targeting or portfolio insurance strategies provide effective downside protection, the latter strategies suffer less from inferior risk forecasts given the defensive portfolio insurance mechanics.

Item Type:
Journal Article
Journal or Publication Title:
European Financial Management
Uncontrolled Keywords:
?? cppidppiexpected shortfallforecast combinationreturn synchronizationrisk modelingtail risk protectionvalue‐at‐riskeconomics, econometrics and finance(all)accounting ??
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Deposited On:
11 Dec 2019 14:05
Last Modified:
09 Jan 2024 00:25