Riskdata: The differences between the StableVar and the StressVar

In theory, the VaR (or CVaR) based on Stable distributions is a smart way to model tail risk. But it is not the only one: the StressVaR models tail risk too.

When facing the practical challenges of modeling Hedge fund risk, considering small sample issues, StableVaR fails where StressVaR succeeds, for the following reasons:

If simply applied to the hedge fund returns, the StableVaR misses the main sources of risks that the StressVaR properly captures by estimating fund’s factor exposures

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