Download PDF by Kevin Dowd: An introduction to market risk measurement

By Kevin Dowd

ISBN-10: 0470847484

ISBN-13: 9780470847480

ISBN-10: 0470855207

ISBN-13: 9780470855201

This publication presents an advent to price in danger (VaR) and anticipated tail loss (ETL) estimation and is a student-oriented model of Measuring marketplace Risk (John Wiley & Sons 2002).

An creation to marketplace threat Measurement contains assurance of:

  • Parametric and non-parametric chance estimation

  • Simulation

  • Numerical equipment

  • Liquidity hazards

  • Risk Decomposition and Budgeting

  • Backtesting

  • Stress trying out

  • Model threat
Divided into elements, half one discusses many of the threat size ideas, while half presents a toolkit of the most instruments required to appreciate industry threat dimension. A CD is packaged with the ebook, containing a MATLAB folder of threat dimension services, as well as a few examples in Excel/VBA.

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Additional resources for An introduction to market risk measurement

Example text

While the theory was straightforward, making this system operational involved a huge amount of work: measurement conventions had to be chosen, data sets constructed, statistical assumptions agreed, procedures determined to estimate volatilities and correlations, computing systems established to carry out estimations, and many other practical problems resolved. Developing this methodology took a long time, but by around 1990, the main elements — the data systems, the risk measurement methodology, and the basic mechanics — were all in place and working reasonably well.

The practitioner needs to be able to deal with a number of different risk ‘signals’ at the same time, under real-time constraints, and the Greeks themselves can be very volatile: for instance, it is well known that the gamma of an at-the-money vanilla option goes to infinity as the option approaches expiry, and the volatility of vega is legendary. In using these measures, we should also keep in mind that they make sense only within the confines of a dynamic hedging strategy: the measures, and resulting hedge positions, only work against small changes in risk factors, and only then if they are revised sufficiently frequently.

9 — that enables us to read off the value of the VaR for any given combination of these two parameters. The shape of the VaR surface shows how VaR changes as the underlying parameters change, and conveys a great deal of risk information. In this particular case, which is also typical of many, the surface rises with both confidence level and holding period to culminate in a spike — indicating where our portfolio is most vulnerable — as both parameters approach their maximum values. 9 A VaR surface.

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An introduction to market risk measurement by Kevin Dowd


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