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

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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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16 views

Application of PVAR in macro economic modelling

I'm looking for a model that can best explain the elasticity of non-performing loans to macroeconomic variables and bank specific variables (panel data of a single country). Is PVAR a good choice?
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273 views

Calculating VaR with Monte Carlo simulation

I would like some help here :) I have a problem calculating VaR with the Monte Carlo Simulation. I have followed then next steps, is this a right way to calculate VaR or I need something more? ...
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957 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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30 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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58 views

What is the heat-map method of calculating VaR?

I'm familiar with the historical full revaluation, VcV, and Delta-gamma methods, but a client keeps talking about a heat-map method and I'm not sure what he's talking about. Any ideas?
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1answer
56 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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14 views

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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68 views

VAR of portfolio containing options, equities and forwards

If we want to calculate VAR of a portfolio using variance covariance matrix (delta normal method), containing equities, forwards and options, how do we treat each asset class for making the variance ...
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453 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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2answers
89 views

Futures Parameters for Value at Risk

I am new to risk management. I am calculating the VaR for a portfolio of futures contracts, long and shorts. I calculated it using the historical, parametric, and ...
3
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3answers
351 views

Any package to run VAR-GARCH or VECM-GARCH models in R?

I need to estimate a multivariate VECM-GARCH (or simply VAR-GARCH) in R. Browsing on the internet, I did not find anything yet. Do you know if such kind of packages exists? Please, note that a BEKK ...
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340 views

Value at Risk from Delta of a single asset portfolio

I am trying to figure out the following, for me unfamiliar type of question: Given is a single asset portfolio: the Delta of the portfolio is 15, the value of the asset is 10 and the daily volatility ...
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17 views

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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59 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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2answers
129 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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1answer
116 views

What are the pros and cons of historial and Gaussian approaches to VaR?

What is the difference between historical and Gaussian method of VaR estimation? I know how they are calculated, but what are the pros and cons of each?
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70 views

Imposing Restrictions on Cointegrating Vectors, R example

The code given below estimates a VEC model with 4 cointegrating vectors. It is a reproducible code, so just copy and paste into your R console (or script editor). ...
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2answers
3k views

Is there a step-by-step guide for calculating portfolio VaR using monte carlo simulations

I am trying to determine a step-by-step algorithm for calculating a portfolio's VaR using monte carlo simulations. It seems to me that the literature for this is extraordinarily opaque for something ...
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104 views

How to compute returns and daily VaR of a currency position?

I have a Forex trading account with a base currency USD. I am holding a position in EUR/JPY and would like to estimate my daily VaR. If I compute the EUR/JPY returns using the historic prices this ...
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4answers
476 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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62 views

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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49 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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1answer
56 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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34 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 ...
2
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1answer
178 views

Parametric VaR with Student-t distribution

Im using VaR to estimate parametric VaR. I have been able to do this using a Normal Distribution, however I want to also do this using a Student t-distribution and I'm unsure how to implement that in ...
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443 views

VaR mapping - Forward Foreign Currency Contract

I have a question about VaR mapping for FX forwards. Please bear with me while I outline the problem. Philippe Jorion's book discusses VaR mapping; a means to break down complex instruments into ...
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275 views

Value at Risk for Futures Contracts

I would like to know how you would compute Value at Risk on a portfolio of futures i.e rates futures, commodity futures and equity. How do you deal with the discontinuous form of commodity futures for ...
2
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1answer
37 views

Expected Shortfall alternative formulation

Define: $$q_\alpha(F_L)=F^{\leftarrow}(\alpha)=\inf\lbrace{x\in \mathbb{R}\mid F_L(x)\geq \alpha\rbrace}=VaR_\alpha(L)$$ I want to prove that: $$ES_\alpha = ...
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1answer
63 views

VaR calculation accuracy/comparison/effectiveness through different R packages

My question is what would be the better( in terms of estimation accuracy) method of VaR calculation among below two:, also any small code snippet will be great as a starting point for me. 1st method: ...
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161 views

Positive VaR when calculation on Total Return Indexes?

I recently saw a VaR calculation, and I was wondering whether that calculation made sense. Here the details: 1. Construction of a total return bond portfolio index. By total return I mean that the ...
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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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223 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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119 views

Computing Value at Risk for portfolio in R

I know how to compute VaR with long positions using PerformanceAnalytics. What about a portfolio consisting in two equities A and B, 100 USD long positions in each, and 2 stock options for the same ...
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Value-at-Risk - Currency Swap

Can someone explain to me how to calculate the VaR (delta-normal-method) for a Currency Swap? Thanks in advance. Regards Alexander
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167 views

comparing modified VaR to ordinary VaR

What inferences can one draw when given a modified VaR at x% confidence and an ordinary VaR at x% confidence level. If the two are equal one inference can be that returns are gaussian but that also ...
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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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1answer
62 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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Is there a way to adjust R PerformanceAnalytics function VaR with EWMA or GARCH method?

Is there a way to upgrade R PerformanceAnalytics function VaR with more risk sensitive approaches like EWMA or GARCH? Or is there another R package which can handle the issue?
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122 views

SRRI calculation for absolute return funds

I am trying to understand the formula for calculating SRRI for absolute return funds described in ESMA's guideline CESR/10-673, and Richard's answer has been of great help (What does this formula (to ...
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2answers
340 views

How to compute the VaR for European Call, using the delta-normal method?

I have a European call option with current stock price $S_0$, strike $K$, risk-free rate $r$, volatility $\sigma$, and time to maturity $T$ years. I assume that the stock price at time $t$, which is ...
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Adjusting simple volatitly for a VaR calc

I'm reviewing a VaR estimate adjusting a simple annualized volatility to an unwind period of x days - in this case for an equity position, using the following formula for a given annual volatility : ...
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306 views

quantiative risk measure how they are implemented in R and their use

So far I have just theoretical knowledge of risk measure and never used them in application. Therefore I have some basic question how risk measures are used in reality and how they are implemented in ...
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310 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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926 views

Expected Shortfall (CVaR) Backtesting

I am writing my thesis on VaR and ES risk measurements and have encountered some issues with how to best test the accuracy of ES estimates. My understanding of the topic is that backtesting ES ...
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3answers
251 views

Ran multivariate linear regression, checked normal probability plot, residuals are not normal. What can I do?

One of the required assumptions for multiple linear regression is that residuals are normally distributed, correct? After running my regression, my normal probability plot is showing the typical ...
2
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1answer
73 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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185 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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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 ...