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

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894 views

How to interpret/use VaR and Standard Deviation?

The parametric VaR is defined as follows: $$VaR=Z_a*Vol$$ Is this the best way to interpret how much risk is being taken on for a particular asset? How does one interpret volatility on its own if ...
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441 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 ...
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2answers
711 views

VaR for corporate bonds

I am trying to create a simple risk calculation for the portfolio (ignoring correlations for the moment). I have some corporate bonds with limited daily price changes. Any one have ideas how I can get ...
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162 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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316 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, ...
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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 ...
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2answers
527 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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4k views

portfolio optimisation with VaR (or CVaR) constraints

I would like to optimize a portfolio allocation (maximizing the exposure or the expected return), but with VaR or CVaR contraints. (some parts of my portfolio cannot exceed a certain VaR) How can I ...
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958 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 ...
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2k views

VaR implementation using quantlib?

I am thinking of writing a VaR framework for my existing system, using quantlib to do the bulk of the calculations. Despite several searches, I have not as yet come across a quantlib VaR ...
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887 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 ...
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312 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 ...
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596 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 ...
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295 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 ...
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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
841 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 ...
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1answer
708 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 ...
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2answers
760 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 ...
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319 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 ...
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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 ...