Role of the loss function in the VaR comparison

1. Abad Romero, Pilar
2. Benito Muela, Sonia
3. López Martín, María del Carmen

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This paper examines whether the comparison of VaR models depends on the loss function used for such purpose. We show a detailed comparison for several VaR models for two groups of loss functions (designed for regulators and for risk managers). Additionally, we propose a firm�s loss function that exactly measures the opportunity cost of the firm when the losses are covered. We find that the VaR model that minimises the total losses is robust within groups of loss function but differs across firm�s and supervisor�s loss functions.

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