Market Risk Analysis: Volume IV: Value at Risk Models (v. 4) by Carol Alexander

By Carol Alexander

Written via top industry threat educational, Professor Carol Alexander, Value-at-Risk types varieties half 4 of the industry threat research 4 quantity set. construction at the 3 prior volumes this e-book offers through some distance the main accomplished, rigorous and distinct remedy of marketplace VaR types. It rests at the uncomplicated wisdom of monetary arithmetic and information won from quantity I, of issue versions, significant part research, statistical types of volatility and correlation and copulas from quantity II and, from quantity III, wisdom of pricing and hedging monetary tools and of mapping portfolios of comparable tools to possibility elements. A unifying attribute of the sequence is the pedagogical method of functional examples which are suitable to marketplace threat research in practice.All jointly, the marketplace threat research 4 quantity set illustrates nearly each suggestion or formulation with a pragmatic, numerical instance or an extended, empirical case examine. throughout all 4 volumes there are nearly three hundred numerical and empirical examples, four hundred graphs and figures and 30 case reports lots of that are contained in interactive Excel spreadsheets to be had from the the accompanying CD-ROM . Empirical examples and case reports particular to this quantity include:Parametric linear worth in danger (VaR)models: basic, pupil t and common mix and their anticipated tail loss (ETL);New formulae for VaR according to autocorrelated returns;Historical simulation VaR versions: how you can scale historic VaR and volatility adjusted historic VaR;Monte Carlo simulation VaR versions in accordance with multivariate common and pupil t distributions, and in accordance with copulas;Examples and case reports of various purposes to rate of interest delicate, fairness, commodity and foreign portfolios;Decomposition of systematic VaR of huge portfolios into usual on my own and marginal VaR components;Backtesting and the review of threat version risk;Hypothetical issue push and ancient tension checks, and tension checking out according to VaR and ETL.

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Additional info for Market Risk Analysis: Volume IV: Value at Risk Models (v. 4)

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To wit, the development of International Accounting Standards favouring mark-to-market and hedge accounting where possible (whereby offsetting risks can be reported together). 3. To what extent should risk assessments be ‘objective’? Modern regulations of financial firms (Basel II Amendment, 1996) have been a major driver in the development of risk assessment methods. Regulators naturally want a ‘level playing field’ and objective rules. This reinforces a natural tendency to assess risks purely on the basis of statistical evidence and to neglect personal, forward-looking views.

It is driven internally by the need for optimal returns on risk-based capital and, ultimately, by the survival of the firm. External drivers include clients, who are typically risk averse, and industry regulators, whose objectives are to protect investors and to promote competition, although their ultimate concern is for financial stability in the global economy. In recent years market volatility has been rising as trading focuses on increasingly complex instruments whose risks are extremely difficult to assess.

In 10 weeks I need to bring students up to scratch in Excel as well as equipping them with the basic knowledge of calculus, linear algebra, statistics, econometrics and numerical methods, and how these subjects are used for financial applications. So each year I teach finance through mathematical applications in a very pedagogical way, sometimes in a single class with over 200 students having disparate quantitative backgrounds. I decided to write the first volume with two purposes in mind – as a set text for my Quantitative Methods for Finance course and similar courses (there are plenty) and to provide a fast-track route to intelligent, independent readers who want a succinct, targeted and pedagogical exposition of the mathematical knowledge required by a market risk analyst.

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