AdjustedNormalESHotspots function

Hotspots for ES adjusted by Cornish-Fisher correction

Estimates the ES hotspots (or vector of incremental ESs) for a portfolio with portfolio return adjusted for non-normality by Cornish-Fisher corerction, for specified confidence level and holding period.

AdjustedNormalESHotspots(vc.matrix, mu, skew, kurtosis, positions, cl, hp)

Arguments

• vc.matrix: Variance covariance matrix for returns
• mu: Vector of expected position returns
• skew: Return skew
• kurtosis: Return kurtosis
• positions: Vector of positions
• cl: Confidence level and is scalar
• hp: Holding period and is scalar

Examples

# Hotspots for ES for randomly generated portfolio
   vc.matrix <- matrix(rnorm(16),4,4)
   mu <- rnorm(4)
   skew <- .5
   kurtosis <- 1.2
   positions <- c(5,2,6,10)
   cl <- .95
   hp <- 280
   AdjustedNormalESHotspots(vc.matrix, mu, skew, kurtosis, positions, cl, hp)

Author(s)

Dinesh Acharya

References

Dowd, K. Measuring Market Risk, Wiley, 2007.