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Title: Model risk of expected shortfall Authors:  Emese Lazar - University of Reading (United Kingdom) [presenting]
Ning Zhang - University of Reading (United Kingdom)
Abstract: The model risk of Expected Shortfall (ES) is studied, extending previous results on model risk of Value-at-Risk (VaR). We propose a correction formula for ES based on passing three backtests. Our results show that for the DJIA index, the smallest corrections are required for the ES estimates built using GARCH models. Furthermore, the 2.5\% ES requires smaller corrections for model risk than the 1\% VaR, which advocates the replacement of VaR with ES as recommended by the Basel Committee. Also, if the model risk of VaR is taken into account, then the correction made to ES estimates reduces by 50\% on average.