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Volume 11/Number 2, Winter 2008/09 Research Papers Estimation and decomposition of downside risk for portfolios with non-normal returns Kris Boudt
Faculty of Business and Economics, Katholieke Universiteit Leuven and Lessius University College, 69 Naamsestraat, B-3000 Leuven, Belgium; email: kris.boudt@econ.kuleuven.be Brian Peterson
Diamond Management & Technology Consultants, Chicago, IL; email: brian@braverock.com Christophe Croux
Faculty of Business and Economics, Katholieke Universiteit Leuven and Lessius University College, 69 Naamsestraat, B-3000 Leuven, Belgium; email: christophe.croux@econ.kuleuven.be We propose a new estimator for expected shortfall that uses asymptotic expansions to account for the asymmetry and heavy tails in financial returns. We provide all the necessary formulas for decomposing estimators of value-at-risk and expected shortfall based on asymptotic expansions and show that this new methodology is very useful for analyzing and predicting the risk properties of portfolios of alternative investments.
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