By Kevin Dowd
This publication offers an advent to worth in danger (VaR) and anticipated tail loss (ETL) estimation and is a student-oriented model of Measuring marketplace Risk (John Wiley & Sons 2002).
An advent to marketplace hazard Measurement comprises insurance of:
- Parametric and non-parametric threat estimation
- Simulation
- Numerical equipment
- Liquidity hazards
- Risk Decomposition and Budgeting
- Backtesting
- Stress checking out
- Model hazard
Read Online or Download An Introduction to Market Risk Measurement (The Wiley Finance Series) PDF
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Additional info for An Introduction to Market Risk Measurement (The Wiley Finance Series)
Sample text
This means that our institutions should be pretty safe — unless, like Barings or LTCM, they have a poor risk measurement model. , counterparty default risk on OTC positions), and these too can be determined using an internal models approach. Even if we grant that there is any need for regulatory capital requirements in the first place — and I would suggest there isn’t — then perhaps the best thing we can say about the internal models approach is that it does at least make some effort to tie capital requirements to a reasonably respectable measure of market risk.
However, the VaR will never fall as the confidence level rises, and cases where the VaR remains flat are not too common. 6 VaR at the 99% confidence level. Note: Produced using the ‘normalvarfigure’ function. 7 VaR and confidence level. Note: Produced using the ‘normalvarplot2D cl’ function. 8 VaR and holding period. Note: Produced using the ‘normalvarplot2D hp’ function. how the same VaR varies as we change the confidence level and keep other parameters constant. In this particular case, the VaR not only rises with the confidence level, but also rises at an increasing rate — a point that risk managers might care to note.
In this case, the VaR is determined by the cut-off between the top 99% and the bottom 1% of observations, so we are dealing with a 1% tail rather than the earlier 5% tail. 326. The higher confidence level means a smaller tail, a cut-off point further to the left and, therefore, a higher VaR. 7), which shows 6 Strictly speaking, the VaR is non-decreasing with the confidence level, which means that the VaR can remain the same as cl rises. However, the VaR will never fall as the confidence level rises, and cases where the VaR remains flat are not too common.