New Model to Handle Risks Beyond VaR
Released on November 4, 2014, this whitepaper addresses the limitations of Value at Risk (VaR) as a risk management tool, highlighting the need for a more comprehensive measure such as Expected Shortfall. Following the financial crisis, organizations recognized that VaR alone may not be sufficient to handle extreme risk scenarios, especially in commodity trading.
The paper presents a new back-testing model for Expected Shortfall, demonstrating its application in managing extreme loss events. By testing six different commodities, the model provides valuable insights on how to manage risk more effectively, protect against severe drawdowns, and build risk capital gradually. The study concludes that combining two specific models can significantly improve an organization's protection against market volatility.
Key learnings and topics covered include:
This whitepaper is crucial for commodity trading firms looking to enhance their risk management practices and better handle extreme loss situations.
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