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

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How to calculate VaR/CVaR for private equity, hedge fund, and alternative investment portfolios?

What is the best method for calculating VaR/CVaR for private equity, hedge fund, and alternative investment portfolios? I have only historical monthly return for them.
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145 views

VaR calculation methods of options

I am a little bit confused about VaR in Options and I need a clarification for. I collected the following formulas, can you suggest what is the best formula and explain me why, please?
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77 views

Can you use a t-test on bootstrapped Value at Risk (VaR) figures?

I need to compare VaR before and after the recession. I have a series of market returns for a period before, and a series of market returns for the period immediately after. Both have been ...
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117 views

Econometrics - Testing

If we have a time series of returns and two time series of indicators, how would we test the use of these indicators if they are autocorrelated or nonstationary (VAR Models dont produce significant ...
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147 views

Testing Statistical Significance of Various Portfolio Simulations

I'm trying to determine which of my portfolio simulations/backtests if any are good enough to put some money into. I outline an approach below and I'm interested in knowing: What problems are there ...
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4answers
1k views

Stressed Value at Risk vs Value at Risk

Just read some materials about SVaR. Is there only holding period that changes in comparison to VaR methodology?
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479 views

VaR Calculation - Covariance matrix is not positive semidefinite

This is a basic question. I have three assets, equally weighted, and all the mutual covariances are -1. Then, the covariance matrix looks like - ...
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2answers
167 views

Reasoning behind multiple names for the equivalent risk measures AVaR/ETL/ES/CVaR

Doe's any one know the history behind, or background of the multiple naming conventions for the equivalent risk functions. Different quant authors prefer using different names, does any one know why? ...
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54 views

Historical Scenario analysis for stress testing

I am doing historical scenario analysis in order to calculate stressed VAR for which I have taken 2007-2008 US crisis. I have two question in this regard:- 1) As we have to take prices for stocks ...
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79 views

What would be an alternative if the VaR model is not acceptable?

Assume we have a VaR model wich says : the lost should not exceed X for more 3 days and we come up with more days where the lost exceeded X, what is usually done for the VaR model ? Do we switch to ...
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1k 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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2k views

VaR for FX forwards

I am trying to figure out some of the commonly used approaches to deal with FX forwards (in a currency portfolio containing spots, forwards and swaps) that would allow me to calculate the one day VaR ...
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25 views

Historical VaR on Commodity Physical Forward

Recently came across building Histroical VaR for commodity forward position. Understood from quants guru the best way to calculate VaR is using full re-valuation, Full reval is computationally ...
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80 views

Monte Carlo VaR assuming logistic distribution

I have a Monte Carlo model which measures the Value at Risk (VaR) for given portfolio. I use the geometric brownian motion to model the prices. But let's say I assumed the returns of prices follow the ...
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69 views

Why normalize only data for CDSs for PCA?

I'm reading a Credit Suisse Research Report on PCA. The report says that to preprocess the data, you should "Centre data (and normalize when considering CDS data)." Why would you only normalize ...
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621 views

Elicitability of risk measures

I read that CVaR (Conditional Value-at-Risk, also Expected Shortfall), satisfies coherence, but not Elicitability. On the other hand, VaR satisfies Elicitability, but not coherence. What is ...
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2k views

Historical Value At Risk on option portfolio

I am new to Value at Risk subject in fact everything related to quant. Can any body validate the Value at Risk Model on the option price ? I am using a below explained approach . our portfolio ...
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1answer
2k 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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44 views

Parametric VaR of a portfolio including a swap

I am calcualting the parametric VaR of a portfolio that includes among other things an IRS swap that begins in the exact same day the valuation is done. Therefore, its NPV is 0 and I do not which ...
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17 views

Making apriori Statements on VaR Backtests with a Garch Modelled VaR

so I want to find out, if its possible to find out for any backtest for the Value at Risk(Kupics POF or Christophersen's Markov Test), if it is possible to make apriori Statements on Testing results ( ...
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75 views

How to fit a VAR + GARCH in R

I should create a VAR model with Garch error in R but i don't know how to do it and which package to use. The Vector Autoregressive model (or VECM) should also have covariates in it. Then I should ...
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708 views

Calculating the VaR from a GARCH(1,1) with Student-t innovations

I'm self-studying several questions on Ruey S. Tsay's teaching page. I'm experiencing some difficulty getting the correct answer for final exam 2013 Problem B Question 3. Given a Student-t GARCH ...
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122 views

Understanding the VaR example on wikipedia

In the wikipedia page on VaR The example says: ...
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400 views

Fixed Income Var calculation

I'm trying to calculate var for a portfolio of fixed income securities. I initially want to just calculate undiversified VaR for each instrument. I'm doing the following for each instrument Take ...
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What information should be delivered to the client so they have enough information to manage their exchange rate risks? [closed]

The client can be a CFO or CEO. The information can indicators, charts, graphs, statistics, ratios, etc. I know the VaR is one of them.
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Do people actually use VaR in professional settings?

VaR seems like such an obviously flawed metric, I am surprised that it seems to be used so much in the private sector. First, the way it is named and the way it is presented often imply it is the ...
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Value At Risk for Long and short position with same maturity and same traded price

I am not a quant geek.I always have doubt what should be the VaR output for portfolio contains long and short of the same maturity @ same traded price. e.g. CME corn future of sept expiry ...
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101 views

RiskMetrics VaR Volatility Sample Size

RiskMetrics calculates volatility using an exponentially weighted moving average. For a decay factor of 0.94, they advise a sample size of 74 past returns. Does this mean the entire calculation should ...
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53 views

Is it OK to consider the expected return is zero for stocks when calculating VaR over a short horizon?

I want to implement the approach described in the following recipe for calculating VaR: Is there a step-by-step guide for calculating portfolio VaR using monte carlo simulations I was told that I can ...
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57 views

What is the correlation of stock options?

I want to calculate the VaR of two correlated option positions, and I know the correlation between stock price returns. I want to separately calculate $Var_1$,$Var_2$ for option 1 and 2, and then use ...
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257 views

How to compute the historical VaR for a portfolio with long and short positions?

I would like to calculate historical Value at Risk for a portfolio that includes both long and short positions in forward contracts. The part that confuses me is that I wonder whether the VaR of the ...
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578 views

Difference between VaR and credit VaR?

Quick question: is there a difference between credit VaR and VaR or are they the same thing?
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62 views

Variance covariance matrix for a portfolio containing bonds also with other asset classes

What should we take for a bond or a zero coupon bond in order to make a variance covariance matrix? For example:- Equities - we take the market price Cash - we take the spot rates Bonds - Do we take ...
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869 views

How to calculate Credit VaR?

(source John Hull, Options Futures and Other Derivatives 8th edition) I can't follow why Hull calculates Credit VaR in the following manner. I thought CVaR was Unexpected Loss$_{confidence}$ - ...
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299 views

Compute cross-gamma

I am trying to use delta-gamma method with montecarlo simulations to calculate the VAR of a portfolio consisting in options and equities. To use the method I need to compute a gamma matrix, that has ...
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355 views

Parametric/Analytical VaR

Suppose I want to calculate VaR for a known distribution with mean $\mu$, variance $\sigma^2$ and $\alpha$-quantile as, $VaR_{\alpha}$ = $\mu + \sigma q_{\alpha}$. For a Gaussian distribution it is ...
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86 views

Component VaR is additive but at what level

I have a portfolio data as ...
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232 views

How to backtest the VaR model?

I have a sorted historical P&L vector of 250 days and say, I want to calculate the 90% VaR on this distribution. I will look for the 225 element (90% * 250 = 225) and this will be my Value at ...
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Value at Risk Backtest type 2 error

I am wondering why in the most popular tests(Kupiec's POF, Christoffersen, the Null hypothesis is "our model is accurate". If we set our null hypothesis that way, we only have a decent result if we ...
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29 views

Stress Testing of the portfolio containing Equities, Bonds and Options

I have a portfolio containing equities, bonds and options for which I have calculated VAR through variance covariance matrix. No I want to calculate the stressed VAR for which I have adopted the ...
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Monte Carlo - Inflated Asset Paths Due to Correlation

I built a MC generator for 12 assets based on Brownian Motion and noticed some strange results. Formula Used S(t) = Exp(S(t-1) + (mean - (vol. / 2)) + (stdev * Normal Distribution #)) S(0) = Ln(1) ...
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VaR mapping fixed-for-floating swap

I came across a problem that asks what risk factors to map a 5 year semi annual settle fixed-for-floating swap to given it's just before the reset date. Since a FRN prices to par just before the reset ...
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79 views

Delta Volatility Surface Usage to value the option

I always find myself in the unknown charted territory when it comes to non-Linear Instruments. I come across the scenario, How to value the option using Delta Vol surface? Example I have CME traded ...
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43 views

Estimating Credit VaR using a simulation of joint defaults with a copula

I'm trying to follow the steps Malz gives to calculate Credit VaR using simulation of joint defaults with a copula. I'm having trouble understanding some of the steps. My math knowledge is rather ...
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Do I need to update the standard deviation into GARCH for the next step conditional variance predict?

I need to compare two garch models, I try to do that by Value at Risk. In general, if I have an initial conditional variance, for example, h1, then I can predict the next N days conditional variance ...
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82 views

Correlating random numbers seems to skew the data

First off, apologies for the cross-post from mathematics, but I found this site later and think it would be a better fit for the question (besides, there has been no comments/answers on mathematics ...
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What mean factor behind a yield?

When quoting a yield of a transaction e.g. yield 3.8% behind the yield it is quote "factor" - in this case of a yield of 3.8% it is mentioned in brackets (factor 26.11) . The lower the yield the ...