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Assume we have a VaR model wich says : the lost should not exceed X for more 3 days and we come up with more days where the lost exceeded X, what is usually done for the VaR model ?

Do we switch to Monte Carlo VaR ? Do we keep the same VaR and add a security factor in the computing the required capital ? Do we switch to excepcted shortfall ?

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1 Answer 1

up vote 3 down vote accepted

In general I would answer your question in the following way: Alternatives to VaR which share most of its helpful properties but not its shortcomings are the so called coherent risk measures. They have the following properties:

  • monotonicity
  • sub-additivity
  • homogeneity and
  • translational invariance

One example would be the conditional value-at-risk.

You can find more on Wikipedia:

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