By Moorad Choudhry
The value-at-risk size technique is a widely-used software in monetary marketplace threat administration. The fourth version of Professor Moorad Choudhry's benchmark reference textual content An creation to Value-at-Risk bargains an available and reader-friendly examine the idea that of VaR and its diversified estimation equipment, and is aimed in particular at beginners to the marketplace or these unusual with sleek danger administration practices. the writer capitalises on his event within the monetary markets to give this concise but in-depth assurance of VaR, set within the context of danger administration as an entire.
Topics coated contain:
- Defining value-at-risk
- Variance-covariance technique
- Monte Carlo simulation
- Portfolio VaR
- Credit chance and credits VaR
themes are illustrated with Bloomberg displays, labored examples, routines and case experiences. similar concerns resembling records, volatility and correlation also are brought as valuable historical past for college kids and practitioners. this can be crucial analyzing for all those that require an advent to monetary industry probability administration and value-at-risk.
Read or Download An Introduction to Value-at-Risk PDF
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Extra resources for An Introduction to Value-at-Risk
Each of these zero-coupon bonds is exposed to only one market factor – a specific UK zero-coupon interest rate. Similarly, a foreign currency bond can be mapped into a set of zero-coupon bonds and a cash foreign exchange amount subject to movement in the spot foreign exchange (FX) rate. Specify distributions The analytic method makes assumptions about the distributions of market factors. For example, the most widely used analytic method, JP Morgan’s RiskMetrics, assumes that the underlying distributions are normal.
Moving on from here, the concept of VaR is built on obtaining probabilities of loss based on the distribution of returns from a market investment instrument. Sharpe Ratio The Sharpe Ratio is a reward–risk ratio. It measures the extent to which the return of an investment (above the risk-free return) exceeds its volatility. The higher the ratio, the more reward an investment provides for the risk incurred. , T-Bill); Vm ¼ Standard deviation of instrument m. 5 is considered fair return for risk incurred.
High-volatility assets show a wider variability around the mean. Market practitioners wish to obtain a volatility value that approximates around the normal distribution. This is done by recording a sufficiently large volume of data and reducing the price change intervals to as small an amount as possible; this means that the price changes can be described statistically by the normal distribution curve. We saw earlier in the chapter that the normal distribution curve has two numerical properties known as mean and standard deviation.
An Introduction to Value-at-Risk by Moorad Choudhry