Estimation methods for expected shortfall

Abstract

Introduced in the 1980s, value at risk has been a popular measure of financial risk. However, value at risk suffers from a number of drawbacks as measure of financial risk. An alternative measure referred to as expected shortfall was introduced in late 1990s to circumvent these drawbacks. Much theory have been developed since then. The developments have been most intensive in recent years.However, we are not aware of any comprehensive review of known estimation methods for expected shortfall. We feel it is timely that such a review is written. This paper (containing six sections and over 140 references) attempts that task with emphasis on recent developments. We expect this review to serve as a source of reference and encourage further research with respect to measures of financial risk.

Keywords:

• Expected shortfall
• Nonparametric methods
• Parametric methods
• Semiparametric methods

JEL Classification:

• C1
• C0

Acknowledgments

The authors would like to thank the editor and the referee for careful reading and for their comments which greatly improved the paper.