Handbook of the Economics of Finance SET:Volumes 2A & 2B

Chapter 17

Financial Risk Measurement for Financial Risk Management^*

Torben G. Andersen^a1, Tim Bollerslev^b2, Peter F. Christoffersen^c3 and Francis X. Diebold^d4

^aKellogg School of Management, Northwestern University, Evanston, IL 60208, USA

^bDepartment of Economics, Duke University, Durham, NC 27708, USA

^cRotman School of Management, University of Toronto, Ontario, Canada M5S 3E6

^dDepartment of Economics, University of Pennsylvania, Philadelphia, PA 19104, USA, [e-mail]

Abstract

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely ...