Message from the Academic Literature on Risk Management for the Trading Book

In this chapter, fundamental issues of a highly technical nature in current \(VaR\)-based approaches in risk management is addressed by offering a preview of implementation issues such as questions of the necessity of adding time variation in volatility, the appropriate…

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Some Correlation Basics: Properties Motivation Terminologies

Financial correlation and financial correlation risk are the main subjects of focus for this chapter. The relationship between correlation risk and other financial risks are also explored. Financial Correlations There are two types of financial correlations namely: Static and Dynamic…

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VaR Mapping

Mapping arises as a result of fundamental \(VaR\) nature which is the highest level of portfolio measurement. After a portfolio has been mapped on the risk factors, any method of \(VaR\) can be used to build the distribution of profits…

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Backtesting VaR

In this chapter, the accuracy of \(VaR\) models is verified by backtesting techniques. Backtesting is a formal statistical framework that verifies that actual losses are in line with the projected losses. This is achieved by systematically comparing the history of…

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Non-Parametric Approaches

In this chapter, we seek to estimate risk measures without making strong assumptions about the relevant distribution. We focus on how to assemble the \(P/L\) data to be used for estimating risk measures using historical simulation approach. This method will…

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Estimating Market Risk Measures

Data 1. Profit/Loss Data Data comes in various forms and \( { P/L } \) is the simplest. The \( { P/L } \) generated by an asset or portfolio over period, \( t \), is the asset’s or portfolio’s…

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