Summary
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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Platen, E., Stahl, G. A Structure for General and Specific Market Risk. Computational Statistics 18, 355–373 (2003). https://doi.org/10.1007/BF03354603
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DOI: https://doi.org/10.1007/BF03354603