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Cornish-Fisher VaR

Hard · risk_management · Quant Researcher interview question · risk-management, var, cornish-fisher, statistics, quantile, skewness, kurtosis

Gaussian VaR systematically underestimates tail risk for return distributions with negative skew or excess kurtosis, both prevalent in equity, credit, and derivatives portfolios. The Cornish-Fisher expansion adjusts the normal quantile using sample skewness and excess kurtosis to produce a closed-form risk measure that captures these higher-moment effects. This method is often used for internal model VaR calculations at systematic funds. Task Implement the function solution(returns: list, alpha