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Estimation and decomposition of downside risk for portfolios with non-normal returns

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Estimation and decomposition of downside risk

for portfolios with non-normal returns


by Boudt K; Peterson B; Croux C.


Research Center for Operations Research & Business Statistics (ORSTAT) UKL





Modied Value at Risk (VaR) is an estimator of VaR based on the Cornish-Fisher expansion. It is fast to compute and reliable for non-normal returns. In this paper, we introduce modified Expected Shortfall as a new analytical estimator for Expected Shortfall (ES), another popular measure of downside risk. We give all the necessary formulas for computing portfolio modified VaR and ES and for decomposing these risk measures into the contributions made by each of the portfolio holdings. This new methodology is shown to be very useful for analyzing the risk properties of portfolios of alternative investments.



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