Several studies have shown evidence of extreme stock market moves. Financial risk measurement models may produce inadequate risk views under these circumstances when the normality assumption is considered. The central task of this paper is to model risk properly during market crashes. We propose a new Value at Risk algorithm that is based on the “Zero Risk Trading Line”, a technical line which defines the break-even point of an investment. Twenty years after the September 11, 2001, terrorist attacks, we provide an application on one of the biggest stock market crashes in history.
Bramante, R., Facchinetti, S., Market Crashes and Recoveries: The "Zero Risk Line" Approach, in 37th EBES CONFERENCE - BERLIN PROCEEDINGS, (Berlino, 06-08 October 2021), Publisher: EBES Istanbul - Turkey, Istanbul, Turkey 2021: 1099-1102 [http://hdl.handle.net/10807/187155]
Market Crashes and Recoveries: The "Zero Risk Line" Approach
Bramante, Riccardo;Facchinetti, Silvia
2021
Abstract
Several studies have shown evidence of extreme stock market moves. Financial risk measurement models may produce inadequate risk views under these circumstances when the normality assumption is considered. The central task of this paper is to model risk properly during market crashes. We propose a new Value at Risk algorithm that is based on the “Zero Risk Trading Line”, a technical line which defines the break-even point of an investment. Twenty years after the September 11, 2001, terrorist attacks, we provide an application on one of the biggest stock market crashes in history.
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