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Worse fluctuation method for fast Value-at-Risk estimates

By Marc Potters

Abstract

We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard to solve numerically, and should allow fast VaR and ∆VaR estimates of large portfolios, where by construction the influence of rare events is taken into account reliably. Our method can be seen as a correctly probabilized ‘scenario ’ calculation (or ‘stress-testing’).

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.311.1163
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