Business and Economic School
Shanghai Second Polytechnic University¹

Department of Mathematics
Illinois State University²

Office of Information Security, China³

Dynamically Relative Value at Risk, Relative Expected Shortfall and frequency equivalent level of VaR and ES with Two Correlative Stochastic Processes

The calculation of dynamic value at risk (VaR), when cumulative investment and interest rate are relative stochastic processes, is discussed. The dynamically relative value at risk (RVaR) is presented. Analysis of sensitivity of relative value at risk to the change of important parameters is carried out with the help of Monte Carlo simulation. We also discuss dynamically expected shortfall (ES) and relative expected shortfall (RES). Comparison between VaR, RVaR, ES and RES is illustrated with an example. Finally, we study how to determine dynamic frequency equivalent level with an example.

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