Foundations of Risk Management and Consistency of Risk Measure Estimates

Mark Davis (Imperial College London)
Thursday, May 8, 2014 - 5:00pm
TU Berlin, Raum MA 041, Straße des 17. Juni 136, 10623 Berlin

Recently there has been renewed debate about the relative merits of VaR and CVar as measures of financial risk, together with an increasing insistence that these issues cannot be meaningfully discussed without taking into account how the relevant values are to be computed. This prompts an enquiry into the basics of financial risk management, and it seems that key insights from other areas such as weather forecasting have been ignored by the financial community. We introduce a definition of 'consistency' of a risk measure and show among other things that VaR has special properties not shared by any other risk measure.