Value at Risk: Theory and Practice

About this book

Value-at-risk (VaR) is a measure of market risk that has been widely adopted since the mid-1990s for use on trading floors. This is the first advanced book published on VaR. It describes how to design implement and use scalable production VaR measures on actual trading floors. It takes readers from the basics of VaR to the most advanced techniques many of which have never been published in book form. Practical detailed examples are drawn from markets around the world including: Euro deposits Pacific Basin equities physical coffees and North American natural gas. Real-world challenges relating to market data portfolio mappings multicollinearity and intra-horizon events are addressed in detail. Exercises reinforce concepts and walk readers step-by-step through computations. Sophisticated techniques are fully disclosed including: quadratic ("delta-gamma") methods for nonlinear portfolios variance reduction (control variates and stratified sampling) for Monte Carlo VaR measures principal component remappings techniques to "fix" estimated covariance matrices that are not positive-definite the Cornish-Fisher expansion and orthogonal GARCH. First advanced text on Value-at-Risk Practical detailed examples drawn from markets around the world Exercises reinforce concepts and walk readers step-by-step through computations