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Questions tagged [var]

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

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13 views

A quick and dirty loss distribution and Credit VaR

I need to create a loss distribution for a credit portfolio as the first steps to estimate the portfolio Credit VaR. I have historical monthly account snapshots (payment history) of all accounts ...
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2answers
52 views

1 day VaR vs 10 day VaR

Even while using historical simulation VaR, 1 day VaR is converted into 10 day VaR by multiplying 1 day VaR by Sqrt(10) for regulatory reporting purposes. What are the underlying assumptions for ...
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1answer
76 views

VaR equivalent volatility meaning

I have a hard time with interpreting VeV. I mean - I see its just standard deviation derived from Cornish-Fischer VaR, but I don't really know how to interpret it. The formula for VeV is: ...
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0answers
42 views

Compute the VaR from NPV (Net present value)? [closed]

A client is evaluating an investment in Indochina requiring an initial expenditure (period 0) of 10,000, and which then in periods 1 and 2 gives a benefit V1 and V2. Assume that the discount rate to ...
5
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2answers
115 views

Do correlated assets affect the price of a portfolio of derivatives?

I need to compute the value at risk of a given portfolio as an exercise for a class at university but I have trouble understanding how correlated assets affect the price of the portfolio. Could you ...
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1answer
34 views

GJR-GARCH model using garchFit function

I'm trying to use the garchFit function described here in order to define a GJR-GARCH model to estimate volatility and then forecast VaR. I tried using ...
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2answers
45 views

Monte Carlo VaR w/ Multivariate Normal vs. Parametric

In Aladdin's Monte Carlo VaR, the default setting for the joint distribution of factor returns is multivariate normal. Given that normal distributions do not capture the fat tails seen in empirical ...
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0answers
22 views

Gluing the error terms to a VAR model

I am trying to simulate a VAR model with heterokskedastic errors. I have no problem simulating a VAR model, And I have no problem simulating heteroskedastic errors. My problem is trying to do ...
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0answers
39 views

Does it make sense to subtract VaR from spot shocks?

I have a model to compute the Event Risk (in dollars) from a shock to the spot price of an asset. I also have the 10-day VaR PnL for the same assets returns. These two numbers are then aggregated to ...
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0answers
49 views

What should the half-life be in EWMA when calculating VaR from EWMA?

If we want to calculate an $x$-day VaR ($x$ is some time period in days) from an Exponentially Weighted Moving Average (EWMA) of vector of returns, what should the half-life in the decay factor in ...
3
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1answer
95 views

Value-at-Risk for a portfolio model with Gearing

My models: Say I want to construct a portfolio so I maximize my expected return while keeping my risk (measured by Value-at-Risk) lower than my risk target. $$\max \sum x_i \mu_i \\ VaR_{0.05} \leq \...
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0answers
48 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
245 views

RiskMetrics VAR calculations and conditional distribution of sum of log returns

According to Tsay's book in Chapter 7, for the Risk Metrics model: A nice property of such a special random-walk IGARCH model is that the conditional distribution of a multiperiod return is ...
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1answer
47 views

Value at Risk Calculation

In historical simulation VaR, if we have stale data for some of our risk factors, which means daily returns on a particular risk factor is 0 on multiple occasions. Is there any way to solve this other ...
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0answers
41 views

GARCH(1,1) and Value at Risk: Rolling window or non-overlapping samples

Currently studying on financial risk management. I want to test different methods of VaR estimation. I want to model volatility using a GARCH(1,1) model. My question is what should the size of the ...
1
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1answer
64 views

Computing Montecarlo VaR for a single asset

I'm trying to understand the procedure to compute the Value-at-Risk for a single asset by implementing the Montecarlo technique. Here it follows the procedure step-by-step in 5 points: selecting the ...
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1answer
76 views

How long is considered `long-term'?

For a project I am doing I need to simulate the balance sheet of a pension fund. In order to do so I also need to simulate euro inflation. Since my inflation data is non-stationary, I model it using ...
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0answers
63 views

Extreme Value Theory for Value-at-Risk: Advantage versus historical simulation?

I started researching this topic and it is well covered in the literature. My understanding is that it uses a historical time series of returns of a given set of stocks and represent such ...
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45 views

Simulation VaR and CVar assuming Normal Distribution

Am I missing something? Currently implementing a VaR and CVaR measure assuming normality of wealth value. after executing the following script, VaR is always greater than CVaR, as expected, but ...
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0answers
34 views

VaR calculation using excel gives different value than VaR using R at all c values except at c=0.5

This is VaR calculation in excel using variance-covariance method. This is VaR calculation in R. ...
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2answers
71 views

How to prove the following relation of Conditional Value-at-Risk and Value-at-Risk?

How to prove the following relation of Conditional Value-at-Risk $\text{CVaR}_{\alpha}(X)$ and Value-at-Risk $\text{VaR}_{\alpha}(X)$, \begin{equation} \text{CVaR}_{\alpha}(X) = \text{VaR}_{\alpha}(X)+...
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2answers
36 views

Parametric VaR assumption question

Why do you have to make a correlation matrix when calculating the parametric value at risk, if one of the assumptions for this method to work is that the assets of the portfolio must be independently ...
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1answer
97 views

VaR for Options portfolio

I'm asked to estimate VaR for Options portfolio. Firstly, I wanna try to estimate VaR for AAPL stock european call option using Historical Simulation but I can't find any Historical Data. I tried ...
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1answer
58 views

Value at Risk for normal r.v. with shock (regimes)

I am struggling to understand how was this simple Value-at-Risk calculated. It's Example 1 in Daníelsson, Jón, et al. "Fat tails, VaR and subadditivity." Journal of econometrics 172.2 (2013): 283-291 (...
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0answers
76 views

Value at Risk of a Portfolio

I am currently practicing for my Risk Management exam in July but my lecturer is of no help and my colleagues and I have no idea on how to proceed with this question. The past exam papers have similar ...
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2answers
75 views

Calculation VaR on long term period

I'm calculating VaR numbers from historical data for a single instrument (it's plain vanilla, not a derivative) and receive such variables: I could provide necessary data, and formulas but I guess ...
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0answers
39 views

Modelling approaches for interest rate risk in the banking book (IRRBB)

I am having a hard time researching papers that deal with the measurement of market risk in the banking book. The trading book as I see it is similar to asset management and as the name says the ...
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1answer
78 views

Understanding example on VaR

Trying to understand the example below on VaR in Wikipedia. I don't really understand how the 1% VaR is being defined here. Firstly, shouldn't it be 1% Var is 100 since its the amount her looses? And ...
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143 views

Monte Carlo simulation based VaR: daily vs annual parameters

I am given the initial price, annualized return, and volatility of a security. I am trying to calculate annualized VaR using Monte Carlo simulation approach. To do this I will use the following ...
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2answers
150 views

The BISAM fat-tailed volatility model vs EWMA volatility model

Came across the following marketing material where the company called BISAM (FactSet) aka FinAnalytica (?) has developed following fat-tailed volatility model: $$ r_{t} = \mu + \epsilon_{t} $$ $$ \...
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1answer
1k views

Difference between Delta-Gamma and Delta-normal method for VaR

I was reading the differences between Delta-Gamma and Delta-normal method for VaR. One of the difference I found is mentioned below, but I can't understand it's importance. Can anybody please explain ...
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1answer
119 views

Risk Management methods for Stock portfolio with ~30 stocks

What is ideal Risk Management method/methods s for stock portfolios with 25-30 stocks and around 50.000 USD invested in those stocks. Every stock bought will be kept in the portfolio for 1 to 12 ...
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2answers
92 views

Assigning Global VaR to portfolio members

Assuming that I calculate a parametric VaR of a portfolio with 3 assets, and I need to assign the amount each asset (equity) contributes to the VaR. Lets say that: $C$: Is the correlation matrix $w$:...
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0answers
42 views

VaR decomposition of non-normal portfolio by g-and-h distribution

According to Doowoo Nam (2013), VaR of non-normal portfolio returns approximated by g-and-h distribution can be decomposed pretty much in the same way as the VaR of a portfolio with normal returns. ...
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1answer
116 views

Modelling operational risk for Basel pillar 2 (internal model for OpRisk VaR)

I am somewhat familiar with OpRisk for pillar 1. As far as I know OpRisk for pillar 1 will be replaced by standard approaches soon. So what is left is proper modelling in pillar 2. What are best ...
2
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1answer
800 views

EWMA VaR, code from Quant Risk

I am currently attempting to improve my python and understanding of VaR. I have been using the website Quant Risk: http://www.quantatrisk.com/2015/12/02/student-t-distributed-linear-value-at-risk/. ...
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1answer
214 views

PRIIP Category 3 Curves

Good evening, I've tried searching similar posts, but most are unanswered or in a more advanced step than what I'm trying to achieve. I've managed to do the boostrap method for spot prices ...
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2answers
1k views

Value at Risk - Long/Short position

I have a simple question on the VaR for a portfolio that consists of a long and short position. Say I have a portfolio consisting of the following positions: long 1000 shares of stock X short 1000 ...
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0answers
130 views

Parametric VaR of a portfolio of a stock and an option on that stock

I understand how to calculate the parametric VaR of a stock and an option separately. But I don't understand how one can calculate the VaR of a portfolio of a stock and an option on that stock using ...
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0answers
41 views

VaR of future foreign currency income stream

Assume I have a series of future incomes in a single foreign currency. How do I calculate the total VaR for this forex risk using the volatility method? My first thought was that I could simply add ...
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1answer
571 views

Ratio between Expected Shortfall and Value at Risk for $t$-distribution

If $X$ is a random variable with $t$-distribution of parameter $\mathcal{v}$, how can I prove that $$ \lim_{\alpha \to 1^{-}} \frac{\mathrm{ES}_{\alpha}(X)}{\mathrm{VaR}_{\alpha}(X)} = \frac{\mathcal{...
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0answers
81 views

How to derive the limit of ratio between VaR and CVaR?

I know if $X \sim N(\mu,\sigma^2)$, then $VaR_{\alpha}(X) =\mu + \sigma\Phi^{-1}(\alpha)$ and $CVaR_{\alpha}(X) = \mu + \sigma \frac{\phi(\Phi^{-1}(\alpha))}{1-\alpha}$ But how to evaluate $\lim_{\...
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1answer
119 views

How to regard foreign currency forward as foreign and domestic bonds on VaR

In John Hull's book Options, Futures and Other Derivatives 9th page 507 We want to calculate the VaR of a ...
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1answer
80 views

Covariance Interest Rate Risk Time Series

Apologies in advance if this question has been asked already. I am estimating basis risk for different term points in the curve. Imagine i have three time series (1-month, 3-month, 1-year). I ...
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1answer
75 views

VaR estimation when returns are not independent, e.g. ARCH

Time series of returns, $r_t$, in finance are often modeled with some type of conditional heteroskedasticity model, e.g. ARCH(1): $$r_t = \sigma_t z_t$$ $$\sigma_t^2 = a_0 +a_1 r_{t-1}^2$$ where, ...
3
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1answer
176 views

expected shortfall as unconditional expectation

Acerbi has several backtests for expected shortfall. The second backtest is based on this equality Does anybody know how to derive this equality? Can anybody explain, why it makes sense, especially ...
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1answer
146 views

VaR Backtesting. High frequency of exceedances

I'm preparing for thesis defense and I've got simple question connected with Value at Risk backtesting. Portfolio VaR was calculated using historical simulation approach (250 days and 500days) and ...
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1answer
369 views

Confidence Interval on Monte-Carlo-CVaR

I use the Monte-Carlo Simulation for the computation of VaR and CVaR and wish to compute the 95% Confidence Interval of my result(not the confidence level of VaR). In the case of VaR this is simple ...
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1answer
92 views

How to forecast Value-at-Risk in R with different assumptions?

I'm calculating 1-day parametric VaR estimates under the assumption that the returns are distributed as a generalized error distribution. I have the historical observations of the returns, obtained ...
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2answers
788 views

Risk neutrality correction for Monte Carlo Bootstrapping according to PRIIP regulation for products of category III

The PRIIP (packaged products) regulation prescribes Monte Carlo bootstrapping simulation for calculation of VaR for products of category III (non-linearly leveraged products). The idea is based on ...