- The expected shortfall of quadratic portfolios with heavy-tailed risk factors
- Mathematical Finance
- Volume | Issue number
- 22 | 4
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Computable expressions are derived for the Expected Shortfall of portfolios whose value is a quadratic function of a number of risk factors, as arise from a Delta-Gamma-Theta approximation. The risk factors are assumed to follow an elliptical multivariate t distribution, reflecting the heavy-tailed nature of asset returns. Both an exact expression and a uniform asymptotic expansion are presented. The former involves only a single rapidly convergent integral. The latter is essentially explicit, and numerical experiments suggest that its error is negligible compared to that incurred by the Delta-Gamma-Theta approximation.
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