Value-at-risk (VAR)
Shortfall: who contributes and how much?
Understanding risk contributions is a key part of successful risk management and portfolio optimisation. Richard Martin extends the discussion from value-at-risk to expected shortfall and shows that saddlepoint approximation preserves the convexity…
Beyond comparative statics
David Rowe says it is time to extend stress testing to include more than just analysing the immediate impact of selected extreme events
Credit spread shocks: how big and how often?
The second half of 2007 saw violent moves in credit spreads. In the fallout, there has been much discussion about how to estimate the probabilities of these severe events, but few conclusions have been obtained beyond the fact that historical data is…
Calmer markets reflected in VAR figures
Lower volatility across asset classes in the second quarter of the year produced lower value-at-risk figures at almost all major banks, according to a Risk survey.
Credit spread shocks: how big and how often?
The second half of 2007 saw violent moves in credit spreads. In the fallout, there has been much discussion about how to estimate the probabilities of these severe events, but few conclusions have been obtained beyond the fact that historical data is…
The shock of the interaction
Banks have long talked about enterprise risk management, but many have historically measured risk types separately and aggregated the results. The financial crisis has highlighted that credit and market risk are closely linked. What are the challenges to…
The bank capital burden
Keenly awaited Basel II trading book rules were due to be decided upon as Risk went to press. Market participants worry the measures could retard the development of risk models and even kill off whole business lines Mark Pengelly reports
The shock of the interaction
Banks have long talked of enterprise risk management, but many firms have historically measured risk types separately and aggregated the results. The financial crisis has highlighted that credit and market risk are closely linked. What are the challenges…
Hard times for VaR
The Basel Committee's ambitious plan to overhaul VaR models is coming in for fierce criticism. By John Ferry
Error of VAR by overlapping intervals
When overlapping intervals in time series are used, volatility and price changes' percentiles are underestimated. Consequently, value-at-risk is also underestimated. Heng Sun, Izzy Nelken, Guowen Han and Jiping Guo measure the size of this underestimation
A vicious circle
Regulators are looking at how best to ensure capital adequacy rules are not pro-cyclical. The Basel Committee has proposed changes to its market risk rules, but further, counter-cyclical changes have been suggested. What is being considered and what are…
The three flavours of VaR
Each of the three methods of calculating value-at-risk has its pros and cons. Brian Shydlo of Sirius Solutions examines them
Component VAR for a non-normal world
It has become standard to account for non-normality when estimating portfolio value-at-risk, but there are few methods available to calculate the risk contributions of each component in a non-normal portfolio. Brian Peterson and Kris Boudt present a…
Component VAR for a non-normal world
Market Risk
Valid Assumptions Required: backtesting
Given the large number of assumptions made in calculating a value-at-risk, how can we have confidence in the quality of the resulting calculation? Brett Humphreys looks at using backtesting to evaluate quality.
