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Article Dans Une Revue Journal of Alternative Investments Année : 2010

The StressVaR: A New Risk Concept for Extreme Risk and Fund Allocation

Raphaël Douady
Ilija I Zovko
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Résumé

In this paper we introduce a novel approach to risk estimation based on nonlinear factor models-the "StressVaR" (SVaR). Developed to evaluate the risk of hedge funds, the SVaR appears to be applicable to a wide range of investments. The computation of the StressVaR is a 3 step procedure whose main components we describe in relative detail. Its principle is to use the fairly short and sparse history of the hedge fund returns to identify relevant risk factors among a very broad set of possible risk sources. This risk profile is obtained by calibrating a polymodel, which is a collection of nonlinear single-factor models, as opposed to a single multi-factor model. We then use the risk profile and the very long and rich history of the factors to asses the possible impact of known past crises on the funds, unveiling their hidden risks and so called "black swans" (Taleb [2007]). In backtests using data of 1060 hedge funds we demonstrate that the SVaR has better or comparable properties than several common VaR measures-shows less VaR exceptions and, perhaps even more importantly, in case of an exception, by smaller amounts. The ultimate test of the StressVaR however, is in its usage as a fund allocating tool. By simulating a realistic investment in a portfolio of hedge funds, we show that the portfolio constructed using the StressVaR on average outperforms both the market and the portfolios constructed using common VaR measures. For the period from are even more impressive. The SVaR portfolio outperforms the market by 20%, and the best competing measure by 4%.
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Dates et versions

hal-02488591 , version 1 (23-02-2020)

Identifiants

Citer

Cyril Coste, Raphaël Douady, Ilija I Zovko. The StressVaR: A New Risk Concept for Extreme Risk and Fund Allocation. Journal of Alternative Investments, 2010, 13 (3), pp.10-23. ⟨10.3905/jai.2011.13.3.010⟩. ⟨hal-02488591⟩
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