The paper provides an empirical assessment of the market risk exposure of several portfolios representative of real life investment positions. We employ the notion of value at risk made popular by the recent debate on capital budgeting policies of financial intermediaries and by the new capital requirements for banks established by the Basle Committee on Banking Supervision. We provide evidence of the extent to which market risk exposures may diverge according to the different methods of risk measurement. We test the sensitivity of risk assessment to the number of factors employed, measures of volatility (conditional versus unconditional) and correlations (stable versus
unstable), and the linearization of non-linear payoffs. With reference to the latter, we previde evidence of the importance of risk assessment misalignments for positions in options that exhibit a reduced degree of delta exposure but entail a significant degree of payoff convexity and non-normality.
Codice DOI: 10.32057/0.TD.1997.0317
