A structure for general and specific market risk

Publication Type:
Journal Article
Computational Statistics, 2003, 18 (3), pp. 355 - 373
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The paper presents a consistent approach to the modeling of general and specific market risk as defined in regulatory documents. It compares the statistically based beta-factor model with a class of benchmark models that use a broadly based index as major building block for modeling. The investigation of log-returns of stock prices that are expressed in units of the market index reveals that these are likely to be Student t distributed. A corresponding discrete time benchmark model is used to calculate Value-at-Risk for equity portfolios.
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