Measuring potential market risk

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Title: Measuring potential market risk
Author: Bask, Mikael
Organization: Suomen Pankki
Series: Bank of Finland Research Discussion Papers
Series number: 20/2007
Year of publication: 2007
Publication date: 5.7.2007
Published in: Published in Journal of Financial Stability, Volume 6, Issue 3, September 2010: 180-186
Pages: 16 s.
Keywords: riskit; ekonometria;
JEL: G11
Abstract: The difference between market risk and potential market risk is emphasized and a measure of the latter risk is proposed. Specifically, it is argued that the spectrum of smooth Lyapunov exponents can be utilized in what we call (??2)-analysis, which is a method to monitor the aforementioned risk measures. The reason is that these exponents focus on the stability properties (?) of the stochastic dynamic system generating asset returns, while more traditional risk measures such as value-at-risk are concerned with the distribution of returns (?2). Keywords: market risk, potential market risk, smooth Lyapunov exponents, stochastic dynamic system, value-at-risk JEL classification number: G11

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