Value at Risk, a widely used risk measure of the risk of loss on a specific portfolio of financial assets.

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504 views

Backtesting VaR model violation independence

I am interested in hearing about the practitioner state of the art for testing the time independence of a VaR model (i.e. that VaR violations are independent in time). There are a number of tests in ...
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1answer
432 views

Calculating portfolio VaR for (custom) leveraged products

I have been searching online for a few days regarding how to calculate portfolio VaR for a portfolio consisting of leveraged products - but so far, I have not been able to come up with anything ...
3
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1answer
160 views

How do I model risks for specific short-term short calls in a portfolio with limited data?

I'm trying to do some risk analysis on a portfolio of bonds, currency, stocks and short calls. The short calls expire in approximately 15-30 days and I've only got around 20 days of pricing data on ...
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0answers
306 views

VaR backtesting with overlapping time intervals

Of course the issue here is dependence: can it be removed or accounted for (in independence tests too, which of course would be troublesome)? There's a lot of literature on regression in this setting, ...
1
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1answer
1k views

What does this formula (to derive annualized volatility from VaR) mean?

I'm faced with the formula shown in the image below, which I just don't understand, in part because I've no grounding in stats, and in part because I don't even understand the notation: What's ...
8
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3answers
883 views

How does Cornish-Fisher VaR (aka modified VaR) scale with time?

I am thinking about the time-scaling of Cornish-Fisher VaR (see e.g. page 130 here for the formula). It involves the skewness and the excess-kurtosis of returns. The formula is clear and well ...
7
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1answer
687 views

How to limit the nbr of cross-gamma calculations in a delta-gamma VaR calculation?

Many times, we want to calculate VaR using some parametric approach (delta-normal approximation for instance) when historical simulation or monte carlo are simply to slow. This is fine as long as only ...
3
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3answers
853 views

Do I need a copula to accurately estimate the VaR of a portfolio of risky assets?

I need to estimate the daily VaR of a portfolio of various exposures in $n$ risky assets (say equity futures). The simplest approach, I think, would be to just estimate VaR from a multivariate normal ...
3
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2answers
309 views

central limit theorem and VAR

If I have a lot of data points and number of different dependent variables, can I use central limit theorem to assume data is multivariate normal and compute my VAR? Is this the appropriate use of ...
6
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2answers
588 views

How to minimize the difference between a parametric VaR and a MC-VaR with lognormal assumption?

Given that we want to find the Value at Risk for a portfolio of stocks only, there are two main methods to proceed. In the problem, we also assume that stocks follow a geometric Brownian motion. A ...
6
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1answer
290 views

Which is a more appropriate choice of risk measurement in a utility function, CVaR or VaR?

What is the consensus on which risk measure to use in measuring portfolio risk? I am researching what is the best risk measure to use in a portfolio construction process for a long/short option-free ...
5
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3answers
116 views

Which lags or percentiles should be run in a batch when calculating Value-at-Risk?

Are there any "standard" VaR calculations run in a batch? For example, testing a VaR calculation with a lag of 1,2, 5 or 10 days over 2 years? Same question for the percentile, 1%, 2.5%, 5% etc.
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2answers
750 views

How are distributions for tail risk measures estimated in practice?

Let's say you want to calculate a VaR for a portfolio of 1000 stocks. You're really only interested in the left tail, so do you use the whole set of returns to estimate mean, variance, skew, and shape ...
23
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2answers
6k views

What is the difference between the methods for calculating VaR?

There are three different commonly used Value at Risk (VaR) methods: Historical method Variance-Covariance Method Monte Carlo What is the difference between these approaches, and under what ...
3
votes
2answers
829 views

Covariance for arbitrarily large portfolios

I am implementing a method in Java to calculate the variance, covariance, and value at risk for a portfolio, which should be flexible for use with any number of assets in a portfolio. I am struggling ...
11
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1answer
316 views

What approaches are there for stress testing a portfolio?

Wikipedia lists three of them: Extreme event: hypothesize the portfolio's return given the recurrence of a historical event. Current positions and risk exposures are combined with the historical ...