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Daniel HERLEMONT. Financial Risk Management. Computing Value at Risk. Following P. Jorion, Value at Risk, McGraw-Hill. Chapter 5. Daniel HERLEMONT.
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Financial Risk Management

Computing Value at Risk Following P. Jorion, Value at Risk, McGraw-Hill Chapter 5

Daniel HERLEMONT

Steps

Daniel HERLEMONT

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Steps

Daniel HERLEMONT

VAR for general distribution  The relative VAR to the mean

 Absolute VAR

 For short horizon it makes no difference, since the mean is usually small

Daniel HERLEMONT

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Daniel HERLEMONT

VAR for parametric distribution  VAR for normal distribution

 In other word, if normality is assumed VAR is simply proportional to volatility  This is not the case for distribution with fat tails

Daniel HERLEMONT

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Daniel HERLEMONT

How Normal approximation works in practice

Daniel HERLEMONT

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VAR as a risk measure see FRM chapter 11 presentation

Daniel HERLEMONT

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