Journal of Operational Risk
ISSN:
1744-6740 (print)
1755-2710 (online)
Editor-in-chief: Marcelo Cruz
Fat tails, expected shortfall and the Monte Carlo method: a note
Michael Brunner, Fabio Piacenza, Fabio Monti, Davide Bazzarello
Abstract
ABSTRACT
The expected shortfall or conditional value-at-risk is discussed as often it is now recommended as an alternative to the risk measure of value-at-risk. At the same time, the Monte Carlo method is widely used as a way to derive a statistical approximation of the results. In this note, it is demonstrated that the Monte Carlo method can have extremely bad convergence properties for heavy tailed distributions in combination with specific risk measures, including conditional value-at-risk.
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