Questions tagged [var]

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

Filter by
Sorted by
Tagged with
0
votes
0answers
25 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 ...
0
votes
1answer
45 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 ...
2
votes
1answer
40 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 + \...
0
votes
2answers
128 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 ...
2
votes
2answers
127 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 ...
2
votes
0answers
43 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, ...
0
votes
0answers
54 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 ...
0
votes
1answer
64 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. ...
0
votes
1answer
72 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 ...
0
votes
1answer
73 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....
3
votes
1answer
118 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 ...
0
votes
1answer
47 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 ...
3
votes
1answer
134 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 ...
0
votes
0answers
39 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 ...
0
votes
0answers
31 views

VAR Monte Carlo GBM vs Selecting Normal Dist Returns

I am running a VaR calculation and have seen two ways of doing it in several places online. One simply assumes normal distribution of returns and selects n number of returns from the normal ...
1
vote
0answers
94 views

Interpretation of Value at Risk

Let $X$ be a Loss random variable (Positive values of X represents Losses) and let $p \in (0,1)$. I know that the Value at Risk at level $p$ of $X$ is defined as: $$VaR_p(X) = inf{\{x \in \mathbb{R} : ...
0
votes
0answers
40 views

Credit VaR for this portfolio assuming no default correlation and no recovery?

I am trying to estimate the Credit VaR for a portfolio of two risky bonds. The Credit VaR is defined as the maximum unexpected loss at a confidence level of 99.9% over a one-month horizon. Assuming ...
0
votes
2answers
81 views

10-day VaR for a portfolio

So, Bank ANZ owns a portfolio of options on the USD/GBP exchange rate. The delta equivalent position of the portfolio is GBP 56.00. The current exchange rate is 1.5, with a daily volatility of 0.7 ...
-1
votes
1answer
107 views

Capital Allocation, VaR, Expected Shortfall

Are there any serious drawbacks / weaknesses in the Euler allocation method, when used to allocate VaR capital (and potentially Expected Shortfall) to risk factors in a portfolio? I notice that ...
1
vote
0answers
126 views

Value at risk, risk-neutral vs real-world probability measures

Does anyone know if there is any link between the Value at Risk of risk-neutral distribution and of the real-world distributions of asset rate of returns?
0
votes
0answers
87 views

VaR Back testing using Christoffersen and negative likelihood ratio (Excel file attached)

In order to backtest a VaR using the independence test of Christoffersen (1998) I calculate the following likelihood ratio (LR): My problem is that I land on a negative LR and: I don't know why this ...
0
votes
0answers
32 views

Backtesting VaR estimates

I'm going to perform a backtest on some VaR estimates (a huge sample) for a personal project. I'm wondering if the tests which are commonly used to evaluate VaR (Christoffersen, Kupiec) are in some ...
0
votes
0answers
24 views

Testing VaR accuracy on a large series of data

I'm going to perform a backtest on two VaR models on a very large dataset (+50.000 values). Normally, I would use the Christoffersen LR test but in my case, due to the very large number of observation,...
1
vote
0answers
54 views

Longer / Shorter period loss

I am struggling on I think a quite simple issue. Let's take a portfolio of 100 loans. If we assume they are independent, each loan’s default is a Bernoulli with parameter $p=0.01$ over a certain time ...
5
votes
4answers
482 views

How to determine what's driving the VaR?

I am given the following data: Historical (260 days) P&L vector of a portfolio. Specific P&L's for each investment in the portfolio, for the 10 days with the lowest P&L. The question ...
1
vote
1answer
93 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 ...
0
votes
1answer
238 views

Calculate the VaR and ES for a confidence level of 99.5% [closed]

Question: The change in the value of a portfolio in three months is normally distributed with a mean of $500,000$ and a standard deviation of $3$ million. Calculate the VaR and ES for a confidence ...
1
vote
1answer
113 views

Total portfolio VaR greater than aggregated individual VaRs

I am facing something weird in a simulation. I have calculated a portfolio VaR: 100\$. Then I aggregated the VaR for individual position (loans) and obtain: 98\$. I thought it was not possible for the ...
0
votes
0answers
36 views

Vasicek credit loss for real portfolio

Consider the Vasicek limiting distribution for losses of a loans portfolio. Now, consider a real portfolio, made of 10 loans each with a different rating class; eg: LN#1 - rating A+ LN#2 - rating BB ...
1
vote
0answers
76 views

Difference between Vasicek and Gordy models

I'm trying to understand what Gordy [1] added to Vasicek [2] model (the core of the IRB formula of Basel Accords). Is it correct to say the Vasicek shows that the portfolio loss conditional on $Y$ ...
1
vote
1answer
82 views

When is the VAR equal to the CVAR

After running an optimisation using a quadratic utility (CRRA) function I calculate an CVAR that is equal to the VAR especially for very small risk-aversion levels ($\gamma$=1 and $\gamma$=2 e.g.). ...
3
votes
0answers
49 views

Joint Distribution of Correlated Variables with Markov Switching

I am modeling a portfolio of correlated assets whose lack of liquidity can be reasonably described by a Markov-switching model. That is, not only is movement size among assets correlated, but so is ...
0
votes
1answer
44 views

Lead-lag bivariate VAR model

I am really interested in Granger-causality. Can anyone think of a paper that uses a bivariate VAR model in economics or finance?
1
vote
1answer
137 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 ...
0
votes
0answers
36 views

VaR of protfolio with put and call

I've stumbbled into this question in a job interview and didn't know how to answer it: Calculate the VaR of a portfolio where you are long put and long a call
1
vote
1answer
60 views

Normal VaR for short bond

So I'm short a GBP denominated zero-coupon bond which has a face value of 1 million pounds and a remaining maturity of 6 months. Furthermore, I have to assume that the daily return of a 6-month zero ...
0
votes
0answers
51 views

A forward contract to buy a foreign currency can be handled by a linear model

In Hull's book, he says that: "An example of a derivative that can be handled by the linear model is a forward contract to buy a foreign currency." Then he continues with, "For the ...
0
votes
0answers
38 views

Simulated VaR with differently distributed processes

I am attempting to calculate the one-month 95th and 99th percentile profits for a two-year portfolio of energy-generating assets over the next three months. This means that the calculation has two ...
0
votes
1answer
51 views

the relationship between VaR(0.05) and mean?

What is the meaning of the difference between the quantile of prob=0.05 and mean for a sample form a specific distribution? In other words, I would like to understand the relationship between ...
0
votes
0answers
68 views

How to calculate VaR price space according to PRIIP flow diagram

My question is regarding the European regulation on standardizing the information in the KID's for PRIIPs. (https://esas-joint-committee.europa.eu/Publications/Technical%20Standards/JC%202017%2049%20(...
2
votes
0answers
71 views

Implied volatility surface modelling in filtered historical simulation

What is the best way to model implied volatility surface in filtered historical simulation (other than keeping it constant)? Is it appropriate to apply GARCH-like model to every point on the surface? ...
1
vote
1answer
79 views

Resources on VaR modelling for derivative portfolios?

I'm interested in finding resources related to historical VaR calculation for derivative portfolios where both spot and implied volatility changes are accounted for. The resources I've been able to ...
2
votes
1answer
102 views

Incremental/marginal contribution to VaR in a simulation setting

Estimating marginal contributions to VaR in a simulation setting is apparently quite difficult (see e.g. this blog post) due to issues with sampling variability. My question is whether the following ...
1
vote
0answers
48 views

Advantage of copula over estimation based on historical data

It seems to me hard to intuitively understand the concept of copulas and their advantages. For example, why would it be better to estimate value at risk of portfolio by modelling its asset returns ...
1
vote
1answer
193 views

Value at Risk (VaR): Normal distribution with gamma distributed volatility

If I was to do a 99% VaR calculation on a portfolio with normally distributed returns $\mathcal{N} (\mu,\sigma)$, the 99% VaR would be $\mu - 2.33\sigma$. Instead of having a constant volatility, let'...
0
votes
0answers
79 views

Why is VaR metric still used?

It is well know that VaR is not subaddtive measure which means that condition $$ \text{VaR}(X+Y) \leq \text{VaR}(X) + \text{VaR}(Y), $$ where $X$ and $Y$ are portfolios, is not satisfied. As a ...
2
votes
1answer
246 views

How do you handle implied volatility performing a VaR Monte-Carlo simulation using a stochastic volatility process calibrated on the underlying

Say you have a portfolio consisting of options each having a market implied volatility. If you now use some stochastic volatility model like GARCH to calibrate the real world volatility of the ...
1
vote
1answer
202 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 ...
1
vote
1answer
40 views

Summing up two VaRs

I know that normally you can't just add two VaRs straight ahead and you need to use the formula with the sum of squares and the square root. However, in the marking scheme for the task in the image ...
1
vote
0answers
37 views

ES using historic simulation

Why is the data obtained from 91-100 days all eliminated from the calculation of the 1-day 95% ES? My interpretation is because the first day to calculate the 95% ES should be the 90th day? But I can'...

1
2 3 4 5