Questions tagged [value-at-risk]

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1answer
96 views

VaR on Interest Rate Swaps

I am a newbie and was after a simple explanation on how VaR is calculated for a portfolio of IRS's.
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1answer
28 views

PRIIPs KID: if VaR (Return Space) < -1, how to compute VEV (VaR-equivalent volatility)?

The PRIIPs regulation does not specify how to compute the VaR-equivalent volatility if $VaR_{Return Space} < -1$. What would you do in the following case? I have the following moments from the ...
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2answers
64 views

Does VaR calculations consider my portfolio past

I am relatively new to trading and decided to become more quantitative about it. I have had a portfolio for about two years, where I changed my positions several times. I now learnt about VaR ...
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1answer
514 views

Manually calculating and backtesting VaR and CVaR from DCC-GARCH R

I estimated a GARCH fit to the log returns of three series (CAC 40, a french real estate index and french T10 bond yield series) using rugarch. I then manually ...
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34 views

How is VaR calculated for forward contracts accounting for European put options?

My initial idea is to create profit and loss using an equation like this: \begin{align} P\&L = & \text{European Put P&L} + \text{Forward P&L}\\ P\&L = & [(K-S_T)^+...
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1answer
125 views

VaR using normal vol vS lognormal

We are using a vendor's software to calculate the Parametric VaR (using RiskMetrics approach) that take as input the volatility figure of the risk factors. The volatility used so far was the lognormal....
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1answer
52 views

Risk factor mapping of a foreign bond

Suppose the investor is Australian, and there is a single, 3-month, USD-denominated zero-coupon bond with a face value of \$1 million USD. The AUD/USD exchange rate is \$1.2AUD/USD, and the 3-month US ...
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2answers
532 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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0answers
45 views

How is a return-adjusted nearby created?

I am reading Value-at-Risk Second Edition – by Glyn A. Holton https://www.value-at-risk.net/futures-nearbys-and-distortions/ From 6.6.1 "The standard means of obtaining continual time series from ...
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1answer
183 views

Is there a Python package that implements backtesting for VaR?

I would like to use the tests of Christoffersen (1998), Engle and Manganelli (2004) or Kupiec (1995) to evaluate how good are the VaRs that I have projected. Is there a library that implements these ...
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1answer
50 views

How is VaR calculated with mixed return-periods

For example, if you have a dataset of returns that are not daily or yearly, but span 24 days, 1 day, 5 days, 7 days, etc., how do you calculate or interpret the VaR of that? I've tried linearly ...
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1answer
86 views

How to set VaR and other Risk Limits

I have read a lot of literature on how to calculate VaR and it's advantages and disadvantages. But I am struggling to find anything on how to set a VaR limit. For example, say if I am a Risk Manager ...
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1answer
296 views

Portfolio VaR of a hedge portfolio (long index, short future): What total exposure to take to calculate VaR?

Imagine a portfolio is made of 20m USD invested in equities and -18m USD of MSCI World futures (sell 18m USD short). The annualised volatility of the 20m USD in equities (Equ.) is 15% and the ...
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2answers
246 views

Sharpe ratio with CVaR for denominator and different investor utility functions

I would like to model different type of investors, hence I need to find some kind of utility functions to optimize. Apart from very abstract exponential utility function, I couldn't find any proper ...
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1answer
72 views

Computing VaR in a Monte Carlo simulation (question from Joshi's book)

I am studying Joshi's book on C++ for derivatives pricing. I am at chapter 5 on implementing a statistics gatherers class to use in a (simple) MC routine for pricing vanilla options, where it is ...
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2answers
2k views

Stress Testing for VaR

I am trying to perform stress testing for VaR and have taken into consideration two methods:- 1. Sensitivity analysis 2. Historical scenario analysis. According to the Derivatives Policy group we ...
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1answer
490 views

Historical Simulation of Bond, Stock and Option Portfolio

If I have a portfolio consisting of 1-one stock of unit price equal to S, 2-one 9% coupon American bond with 20 years to maturity and a par value of $1000, 3-and one European call option on the ...
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2answers
115 views

Filtered Historical Simulation VaR for swaps

I am trying to understand how to calculate FHS VaR for a portofolio of vanilla swaps. I think I understand the main ideas behind FHS VaR and how to implement it for other assets such as equities. I ...
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0answers
37 views

Which distribution has higher VaR?

Let say I have 2 distributions with cdf $F_1$ and $F_2$. And I know that $F_1 \leq F_2$. With this information I know that $F_1$ has bigger lower tail than $F_2$ but I don't think this right away ...
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1answer
115 views

Mean-EVaR efficient frontier

Entropic Value-at-Risk (EVaR) is an alternative and more efficient risk measure than conditional Value-at-Risk (CVaR). EVaR serves as an upper bound to both VaR and CVaR. Below is a graph of the mean-...
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36 views

Bond VaR with z-spread

I want to calculate VaR for bonds using historical z-spread changes. I want to apply the changes to the present day z-spread, reprice the bond and obtain the PnLs from which I can calculate VaR. But ...
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1answer
47 views

Testing severity of VaR by changing portfolio component weights

Let's assume that I have a portfolio with two components:$$\omega_i = 0.3$$ $$\omega_j = 0.7$$ I also have two P&L vectors, $v_i$ and $v_j$ each containing 1000 P&Ls. I would like to play ...
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2answers
140 views

recalculate VaR from one currency to another

I have a strange question. For example, I have 95% VaR (1Y, delta-normal) for portfolio with one stock in same currency (for example, USD). What minimal information should I have for recalculation ...
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1answer
51 views

Showing that the shortfall-to-quantile ratio of a normal distribution goes to one

I dont get why $$\lim_{x \to \infty} \frac{\mu \{1 - \Phi(x)\} + \sigma \phi(x)}{(\mu + \sigma x) \{1 - \Phi(x)\} } = \lim_{x \to \infty} \frac{1}{1 - \sigma \frac{1 - \Phi(x)}{(\mu + \...
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41 views

Value At Risk Rigorous Definition

Reading a paper about VaR and don't understand what $a'$ is. The link to the paper is here: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.878.8823&rep=rep1&type=pdf. The relevant ...
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1answer
164 views

Delta-Gamma VaR approximation and cross-gamma

Suppose we have a portfolio of say two vanilla options (e.g. on two index futures). One option A with underlying X and a second option B with underlying Y. I'm trying to calculate the delta-gamma ...
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0answers
82 views

Why is infimum chosen to define value at risk as opposed to the minimum?

I believe that the VaR is defined as the infimum of the generalized inverse of the CDF of the loss function (something like that, please correct accordingly): $$\text{VaR}(\alpha)=\inf\{x: F_L(x)\geq \...
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2answers
156 views

Dependence between Credit Default Risk and Credit Spread Risk

I am trying to understand the difference and similarities between Credit Spread Risk and Credit Default Risk. Here is brief (and not all too precise) definition. Credit Spread Risk: Losses due to ...
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1answer
65 views

VAR of Long & Short European Call Options

I have over 1000 simulated stock prices for an option that is expiring in 3 months. I have calculated the EU call option payoff of 1000 simulated prices and now I have 1000 simulated payoffs of call. ...
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0answers
65 views

Backtesting Value-At-Risk (20-days)

I calculate the 20-day returns of (rolling window) of historical stock prices of 2 years. Are there any problems (like autocorrelation) when I want to backtest the VaR (Value-at-Risk) model?
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0answers
49 views

Martingale corrections to historical Value at Risk?

I am looking for a bit of advice. I have recently used to a new firm, which uses Value at Risk in a manner that is unfamiliar from previous places I have worked that I find less than ideal. Previous, ...
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61 views

Portfolio VaR using a gaussian copula

I have a portfolio consisting of bonds, stocks, fx and property. I'm using Monte Carlo to estimate the VaR of this portfolio. To generate the forward-looking interest rate risk factor scenarios I use ...
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47 views

Value at Risk calculation using univariate Markov switching multifractal

So I'm studying different ways for the Value at Risk calculation. Currently my attempt is in using the univariate Markov-Switching Multifractal framework. I've already estimated the $\hat{\sigma}_{t+...
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1answer
78 views

Standard market risk platform Value-at-Risk (VaR)

if possible, could you share publicly available methodological guides/pamphlets or post links to specialised websites which give sufficient detail of the basic assumptions, algorithms and possible ...
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0answers
56 views

Covariance matrix for risk factors of a FX Forward contract

Does it make sense to calculate log-returns of interest rates from a zero curve? Context: I'm trying to build a variance-covariance matrix for the risk factors of a USDBRL FX Forward maturing in 1 ...
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1answer
141 views

Can you predict MTM gain or losses on future contract?

I am working on a structured product where I am investing some percentage of invested amount in futures contract. I have created a bull put strategy and I will calculate the delta positions of that ...
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1answer
729 views

Expected Shortfall Basel III style: what is the idea?

I would like to do a qualitative question about the Expected shortfall in the Basel 3 document. First of all let me introduce few definitions. Suppose to have a portfolio $P$ depending on a family ...
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1answer
96 views

Estimating VaR of bond due to changes in the US yield curve

I am attempting estimate the 99% 10-day VaR of an investment grade bond due to changes in the US yield curve. The data provided is the daily prices of the bond over time. In addition I have the Daily ...
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1answer
133 views

Correlation for Trading vs. Risk Management

Assume a portfolio that contains some asset A and that I am contemplating hedging my delta in A by taking a position in asset B. I would determine how much of B to buy/sell based on the linear ...
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1answer
71 views

Is scaling the standard deviations in the VaR formula (parametric) equivalent to scaling the VaR figure at the end?

I have come across people calculating parametric VaR who scaled the standard deviations by say square root of 10 to scale up to a 10 day horizon. Elsewhere I have seen textbooks suggesting that it is ...
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1answer
210 views

Parametric VaR, Normality and Subadditivity

Good evening; I just have a simple question about Value at Risk and the subadditivity property, and I know that it may sound silly I got that, in general, VaR is not subadditive. However, if a ...
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48 views

LogNormal VaR Formula Risk Metrics

https://web.mst.edu/~huwen/teaching_VaR_Weiqian_Li.pdf On page 6, the paper above mentions RiskMetrics would use the following VaR formula: ...
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1answer
77 views

VaR and Expected Shorfall estimations with negative shape parameter of a GPD (Extreme Value Theory )

So im trying to replicate an code from the Quantative Risk Management Book (https://github.com/qrmtutorial/qrm/blob/master/code/09_Market_Risk/09_Standard_methods_for_market_risk.R). But when i try a ...
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3answers
303 views

Do the minimum VaR and minimum ES portfolios lie on the mean-variance efficient frontier?

The mean-variance efficient frontier holds the minimum variance portfolio, but in the graph above it shows that the minimum VaR (Value-at-Risk) and minimum ES (CVaR) portfolios (expected shortfall/...
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0answers
47 views

what is a simple parametric VaR approach that can be used to compare with ISDA SIMM results?

i am looking for a simple parametric VaR approach that includes vega and/or gamma. i am not sure if to choose a non symmetric distribution for the pnl, what would people use, perhaps some shifted ...
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1answer
94 views

question about significance level

A case study in a exam material goes like this: "Assume that the bank reports a daily VAR of \$100 million at the 99% level of confidence. Under the null hypothesis that the VAR model is ...
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0answers
251 views

Monte Carlo VAR with differente asset classes

I have found a very useful post regarding the use of Monte Carlo simulaton to obtain portfolio Value at risk, based on Cholesky decomposition, random variates, etc. This post I'm talking about is: Is ...
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0answers
39 views

Implications of modeling operational risks without frequency distribution

When modeling operational risk, the Loss Distribution Approach (LDA) is widely used. Usually, we model the loss frequency distribution and the loss severity distribution and then aggregate both to ...
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1answer
84 views

Optimal Portfolios with Skewed and Heavy-Tailed Distributions

I am learning about portfolio theory and been using Markowitz. I wondered, however, if I can use distributional and asymmetric information of the returns to solve the problem. For instance, I have a ...
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2answers
999 views

Backesting VaR on overlapping intervals to year's end

Let us assume that each month of the year (up to November) we calculate a VaR (say 99%) with holding period to the end of the year. Thus the holding period starts with 12 months and goes down to 1 ...

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