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J. Risk Financial Manag. 2016, 9(1), 2; doi:10.3390/jrfm9010002

VaR and CVaR Implied in Option Prices

The Swiss Finance Institute at the Università della Svizzera italiana, 6904 Lugano, Switzerland
Academic Editors: Stefan Mittnik and Marc S. Paolella
Received: 16 November 2015 / Revised: 25 January 2016 / Accepted: 12 February 2016 / Published: 29 February 2016
(This article belongs to the Special Issue Advances in Modeling Value at Risk and Expected Shortfall)
View Full-Text   |   Download PDF [189 KB, uploaded 29 February 2016]

Abstract

VaR (Value at Risk) and CVaR (Conditional Value at Risk) are implied by option prices. Their relationships to option prices are derived initially under the pricing measure. It does not require assumptions about the distribution of portfolio returns. The effects of changes of measure are modest at the short horizons typically used in applications. The computation of CVaR from option price is very convenient, because this measure is not elicitable, making direct comparisons of statistical inferences from market data problematic. View Full-Text
Keywords: VaR; expected shortfall; put option VaR; expected shortfall; put option
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Barone Adesi, G. VaR and CVaR Implied in Option Prices. J. Risk Financial Manag. 2016, 9, 2.

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