Karl Frauendorfer
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Prof. Dr.
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Frauendorfer
First name
Karl
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karl.frauendorfer@unisg.ch
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+41 71 224 2105
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  • Publication
    Approximations of Profit-and-Loss Distributions (A Numerical Approach for Evaluating VaR based on Extremal Measures)
    (Institute for Operations Research, University of St. Gallen, 1995)
    Frauendorfer, Karl
    ;
    Königsperger, Emil
    working report - Value functions (risk profiles) of financial instruments and the real distributions of risk factors are not available in analytically closed forms. These components have to be approximated. In this work, a new approach for risk measurement is introduced. The underlying methodology is based on the utilization of extremal measures for approximating the P&L distribution. A special class of "extremal measures" is employed which exploits the monotonicity of price sensitivities entailed by convexity. Clearly, in case the value functions have monotonous derivatives, the payoff-functions are convex or concave depending on whether a position is held short or long. The incorporated extremal measures provide approximations for both risk factor distribution and risk profiles, and allow for deriving an adequate approximation of the P&L distributions, in particual for appealing VaR-estimates. The basics of this approach are presented and first numerical results are tested against the currently apllied VaR-approaches and the simulation benchmarks established earlier in Allen (1994).
    Type: work report
    URI: https://www.alexandria.unisg.ch/handle/20.500.14171/63338