[R-SIG-Finance] CVaR, fExtremes

[Enrico Schumann]

it seems to me there is a sign problem when it comes to upper and lower
tail. try the following (sorry that I change your example, but for the
Gaussian its easier to check)


require(fExtremes)
testData <- rnorm(100000)

# the function
CVaRtest <- function (x, alpha = 0.05, type = "sample", tail = c("lower", 
    "upper")) 
{
    x = as.matrix(x)
    tail = match.arg(tail)
    VaR = VaR(x, alpha, type, tail)
    if (type == "sample") {
        CVaR = NULL
	  if (tail=="lower"){
        for (i in 1:ncol(x)) {
            X = as.vector(x[, i])
		Z <- VaR[i] - X
            CVaR = c(CVaR, VaR[i] - 0.5 * mean((Z + 
                abs(Z)))/alpha)
        }
	  }else{
        for (i in 1:ncol(x)) {
            X = as.vector(x[, i])
		Z <- VaR[i] - X
            CVaR = c(CVaR, VaR[i] - 0.5 * mean((Z - 
                abs(Z)))/alpha)
        }
	  }
    }
    CVaR
}

VaR(testData,.05,tail="lower")
CVaR(testData,.05,tail="lower")
CVaRtest(testData,.05,tail="lower")

VaR(testData,.05,tail="upper")
CVaR(testData,.05,tail="upper")
CVaRtest(testData,.05,tail="upper")


# so, for your data
n <- 1000000
loss.ratio <- rlnorm(n, -0.3479, 0.104)

VaR(loss.ratio,.05,tail="lower")
CVaR(loss.ratio,.05,tail="lower")
CVaRtest(loss.ratio,.05,tail="lower")

VaR(loss.ratio,.05,tail="upper")
CVaR(loss.ratio,.05,tail="upper")
CVaRtest(loss.ratio,.05,tail="upper")

# a quick check
mean(loss.ratio[loss.ratio > quantile(loss.ratio,.95)])
mean(loss.ratio[loss.ratio < quantile(loss.ratio,.05)])

(btw. the documentation states that alpha is `a numeric value, the
confidence interval', but this should rather be `confidence interval =
1-\alpha')


best, enrico

cc: diethelm,yohan


-----Ursprüngliche Nachricht-----
Von: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] Im Auftrag von Markus
Gesmann
Gesendet: Donnerstag, 10. Juli 2008 13:05
An: r-sig-finance at stat.math.ethz.ch
Betreff: [R-SIG-Finance] CVaR, fExtremes

Hi all,

I struggle to understand the output of the CVaR function in the fExtremes
package.
The output of VaR (Value at Risk) gives me results I expect to see. However
the output of CVaR is less than the output of VaR. From my understanding
CVaR gives the mean over a given threshold and should therefore always be
bigger than VaR.
The fowling example shows the output of VaR and CVaR:

library(fExtremes)
n <- 1000000
loss.ratio <- rlnorm(n, -0.3479, 0.104)
VaR(loss.ratio, 0.995) # same as quantile(loss.ratio, 0.995)
#    99.5%
# 0.9588572
CVaR(loss.ratio, 0.995)
#    99.5%
#0.7088572

I expected an output more like this:
mean(loss.ratio[loss.ratio > 0.995])
# 1.021089
mean(loss.ratio[loss.ratio > 0.995]) - VaR(loss.ratio, 0.995) #  99.5%
#0.09783733

Maybe I am just a little bit confused and mix up terminologies.


Markus



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09.07.2008
18:32