Abstract
The financial world has always been risky, and financial innovations such as the development of derivatives markets and the packaging of mortgages have now made risk management more important than ever, but also more difficult.
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Notes
- 1.
The tail index parameter for the t-distribution is also commonly referred to as the degrees-of-freedom parameter by its association with the theory of linear regression, and some R functions use the abbreviations df or nu.
- 2.
This result shows that VaR is subadditive on a set of portfolios whose returns have a joint normal distribution, as might be true for portfolios containing only stocks. However, portfolios containing derivatives or bonds with nonzero probabilities of default generally do not have normally distributed returns.
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Ruppert, D., Matteson, D.S. (2015). Risk Management. In: Statistics and Data Analysis for Financial Engineering. Springer Texts in Statistics. Springer, New York, NY. https://doi.org/10.1007/978-1-4939-2614-5_19
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