[R-sig-Finance] Modified Cornish-Fisher VaR

Diethelm Wuertz wuertz at itp.phys.ethz.ch
Thu Jul 27 15:35:48 CEST 2006

Brian G. Peterson wrote:

>Has anyone done any work on Modified Cornish-Fisher VaR calculations in R?
----------------- YES ----------------------

You can download R-functions and Description PDF from


WARNING - UNTESTED and not part of official Rmetrics !!!!!

Diethelm Wuertz

>The limitations of VaR in modeling of risk for non-normal distributions 
>have been known for quite some time, and this approach seems to hold some 
>value over other approaches already implemented in RMetrics like 
>Conditional VaR.
>I'm trying to replicate the calculation as laid out in: 
>Favre, Laurent, and Jose-Antonio Galeano. “Mean-Modified
>Value at Risk Optimization with Hedge Funds.” The Journal
>of Alternative Investments, 5 (2002), pp. 21-25.
>and presented in a different form in an earlier paper:
>Fallon, William. "Calculating Value-at-Risk" 
>Working Paper, Wharton, 1996.
>Both of these papers rely on calculating traditional VaR (as is done with 
>fPortfolio.VaR() from the RMetrics package) and then using a 
>Cornish-Fisher Expansion for skew (both papers) or skew and kurtosis 
>(Favre 2002) (as is done using the fBasics.skewness() and 
>fBasics.kurtosis() functions from RMetrics)
>I'm wondering if anyone has already replicated this work in R, and could 
>provide a pointer, or alternately if some of the more experienced people 
>on this list could render an opinion on which of the Cornish-Fisher 
>functions in the core R stats package might be appropriate for this kind 
>of analysis.
>I would like to implement and share a function for Modified Cornish-Fisher 
>VaR, so any assistance would be greatly appreciated.
>   - Brian
>R-SIG-Finance at stat.math.ethz.ch mailing list

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