Description
Book SynopsisVaR, or value at risk, is a concept introduced by bank dealers to establish parameters for their market short-term risk exposure. This text introduces VaR, extreme VaR, and stress-testing risk measurement techniques to major institutional investors.
Table of ContentsPART ONE: INTRODUCTION.
What are Value-at-Risk and Risk Budgeting?
Value-at-Risk of a Simple Equity Portfolio.
PART TWO: TECHNIQUES OF VALUE-AT-RISK AND STRESS TESTING.
The Delta-Normal Method.
Historical Simulation.
The Delta-Normal Method for a Fixed Income Portfolio.
Monte Carlo Simulation.
Using Factor Models to Compute the VaR of Equity Portfolios.
Using Principal Components to Compute the VaR of Fixed-Income Portfolios.
Stress Testing.
PART THREE: RISK DECOMPOSITION AND RISK BUDGETING.
Decomposing Risk.
A "Long-Short" Hedge Fund Manager.
Aggregating and Decomposing the Risks of Large Portfolios.
Risk Budgeting and the Choice of Active Managers.
PART FOUR: REFINEMENTS OF THE BASIC METHODS.
Delta-Gamma Approaches.
Variants of the Monte Carlo Approach.
Extreme Value Theory and VaR.
PAART FIVE: LIMITATIONS OF VALUE-AT-RISK.
VaR Is Only an Estimate.
Gaming the VaR.
Coherent Risk Measures.
PART SIX: CONCLUSION.
A Few Issues in Risk Budgeting.
References.
Index.
