The lecture Unexpected Loss by Edu Pristine is from the course Archiv - Valuation and Risk Models. It contains the following chapters:
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... that can happen over a period of time? The probability of a “worst loss” is certain (100%); the timing ...
... EduPristine For VaR-I (Confidential) 69 99% 2.32 0.0050.0110.016 Mean = 0 +- stdev ...
... 99% VaR ) 1 out of 100 Distribution of WCS mean = -2.51 and ...
... of WCS is -3.1 and -3.9. It means that if the loss exceed the VAR, then probability of loss exceeding 3.9 is 1% ...
... to exceed N$. But it cannot predict the loss when it exceeds! Does not focus on large losses (Tails of distribution) Stress Testing: Supplement to VaR ...
... the risk report: VAR-based – Top-down identification of the relevant risk generators for the trading portfolio. Stress testing-based risk report proceeds in one of two ...
... sudden changes in historical correlations. If two currencies have been pegged to one another, they will exhibit a high historical correlation. A VaR analysis based on that historical correlation will not address the risk that ...
... EduPristine For VaR-I (Confidential) 76 - Simulating shocks that have never occurred - Simulating shocks that reflect permanent structural breaks or temporally changed statistical patterns. Principles of Scenario Analysis ...
... along with the changes in the steepness of yield curve changes in yield volatilities. Changes in the values of equity indices changes in equity index volatilities ...
... Useful when considering only two risk factors. Becomes very complex when risk factors increase. Drawback: EduPristine For VaR-I (Confidential) 78 Drawback: ...
... Shocks the factor by a large amount - Measures the impact on portfolio value Multidimensional Scenario Analysis - Incorporates ...
... would have an adverse impact on the portfolio. Conditional Scenario Method incorporates the correlation ...
... the following methods: Buy protection through insurance or other derivative products change portfolio composition to decrease the ...
... (daily days) (n = Factor Risk Underlying Derivative Linear VAR VAR * = EduPristine For VaR-I (Confidential) 82 *) (%VAR *) (%VAR * w 2w ) (%VAR w ) (%VAR %) (in VaR ab b a b a 2 b 2 b 2 a 2 a portfolioρ + + = w Monte Carlo Simulation:Payoff Gains ! Risk ! Price Value-at-Risk Measurement Methods: VaR Linear Valuation ...