The VaR implementation handbook / Greg N. Gregoriou, editor.

Format:

Book

Contributor:

Gregoriou, Greg N., 1956-

Series:

McGraw-Hill finance & investing

[McGraw-Hill finance & investing]

Language:

English

Subjects (All):

Financial risk management.

Financial risk management--Simulation methods.

Asset-liability management.

Asset-liability management--Simulation methods.

Simulation methods.

Physical Description:

xxx, 528 pages : illustrations ; 24 cm.

Place of Publication:

New York : McGraw-Hill, [2009]

Summary:

Value at Risk (VaR) has emerged as the dominant methodology for determining financial risk, and The VaR Implementation Handbook is the complete guide to using it across a variety of applications.

Investors, traders, portfolio managers, and other asset and risk managers with backgrounds in VaR theory will find The VaR Implementation Handbook indispensable when applying their know-how to equities, operational sectors, and structured products including derivatives.

The VaR Implementation Handbook is packed with the insights, methods, and models that experienced professionals need to remain competitive in the global economy. It provides the latest in cutting-edge research and findings for applying the VaR method of risk management in the real world.

Critical information on measuring, managing, and modeling risk in a handy reference format

The most complete, practical coverage available on VaR modeling

Dozens of illustrative graphs and charts

Theory doesn't pay off unless you apply it. The VaR Implementation Handbook is all you need to effectively put your knowledge of VaR into practice.

Contents:

Part 1 VaR Measurement

Chapter 1 Calculating VaR for Hedge Funds / Monica Billio, Mila Getmansky, Loriana Pelizzon 3

Introduction 4

Hedge Funds 5

Value at Risk 6

Data 13

Results and Discussion 14

Conclusion 20

References 20

Appendix Strategic Decisions 22

Chapter 2 Efficient VaR: Using Past Forecast Performance to Generate Improved VaR Forecasts / Kevin Dowd, Carlos Blanco 25

Introduction 25

A Backtesting Framework 27

Using Backtest Results to Recalibrate the Parameters of the VaR Model 29

Some Examples 31

Conclusion 36

References 37

Appendix 38

Chapter 3 Applying VaR to Hedge Fund Trading Strategies: Limitations and Challenges / R. McFall Lamm, Jr. 41

Introduction 41

Background 43

Analytical Approach 44

Application Considerations 46

Impact of VaR Control 47

Short versus Long History for Setting VaR Risk Limits 51

Implications 53

Conclusion 55

References 56

Chapter 4 Cash Flow at Risk: Linking Strategy and Finance / Ulrich Hommel 59

Introduction 59

A Process View of the Corporate Risk Management Function 62

Value-Based Motives of Firm-Level Risk Management 66

The Incompatibility of Simple Value at Risk with Corporate Risk Management 70

Operationalizing CFaR 72

Governance Implications 78

Conclusion 80

References 81

Chapter 5 Plausible Operational Value-at-Risk Calculations for Management Decision Making / Wilhelm Kross, Ulrich Hommel, Martin Wiethuechter 85

Introduction 85

Operational Risk under Basel II 86

Desirable Side Effects of Operational Risk Initiatives 91

Toward Strategy-Enhancing Operational Risk Initiatives 95

Employment of Real Option Techniques in Operational Risk Initiatives 99

Conclusion 102

References 103

Chapter 6 Value-at-Risk Performance Criterion: A Performance Measure for Evaluating Value-at-Risk Models / Zeno Adams, Roland Fuss 105

Introduction 106

Value-at-Risk Performance Criterion (VPC) 107

Effects of Changing Volatility and Return Distribution 109

Conclusion 115

References 119

Chapter 7 Explaining Cross-Sectional Differences in Credit Default Swap Spreads: An Alternative Approach Using Value at Risk / Bastian Breitenfellner, Niklas Wagner 121

Introduction 122

Estimation Methodology 126

Data and Explanatory Variables 128

Empirical Results 131

Conclusion 135

References 135

Chapter 8 Some Advanced Approaches to VaR Calculation and Measurement / Francois-Eric Racicot, Raymond Theoret 139

Introduction 139

Parametric VaR and the Normal Distribution 141

Using Historical Simulation to Compute VaR 142

The Delta Method for Computing VaR 145

The Monte Carlo Simulation 147

The Bootstrapping Method 149

Cornish-Fisher Expansion and VaR 155

Value at Risk for a Distribution Other Than the Normal but Using a Normal Coefficient 156

Copulas, Fourier's Transform, and the VaR 157

Conclusion 162

References 163

Chapter 9 Computational Aspects of Value at Risk / German Navarro, Ignacio Olmeda 167

Introduction 168

Supercomputing Technologies 169

Graphics Processing Unit Computing 171

An Example 174

Conclusion 182

References 182

Part 2 Risk and Asset Management

Chapter 10 Value-at-Risk-Based Stop-Loss Trading / Bernd Scherer 187

Introduction 188

Stop-Loss Rules for Alternative Return Processes 189

Some Well-known Strategies 192

Conditional Autocorrelation: Threshold Autoregressive Models 196

Conclusion 202

References 203

Appendix: Currency Universe and Data Availability 205

Chapter 11 Modeling Portfolio Risks with Time-Dependent Default Rates in Venture Capital / Andreas Kemmerer, Jan Rietzschel, Henry Schoenball 207

Introduction 208

Initial Model 208

Risk Modeling with Time-Dependent Default Rates 215

Empirical Evidence 220

Conclusion 226

References 226

Chapter 12 Risk Aggregation and Computation of Total Economic Capital / Peter Grundke 229

Introduction 229

Additive Approach 232

Correlation-Based Square-Root Formula 232

Top-Down Approach 233

Bottom-Up Approach 240

Conclusion 241

References 247

Chapter 13 Value at Risk for High-Dimensional Portfolios: A Dynamic Grouped t-Copula Approach / Dean Fantazzini 253

Introduction 254

Dynamic Grouped t-Copula Modeling: Definition and Estimation 256

Simulation Studies 259

Empirical Analysis 271

Conclusion 277

References 279

Appendix: List of Analyzed Stocks 282

Chapter 14 A Model to Measure Portfolio Risks in Venture Capital / Andreas Kemmerer 283

Introduction 284

Toward a Risk Model in Venture Capital 285

A Risk Model for Venture Capital 290

Data Sample 297

Empirical Evidence 299

Conclusion 308

References 308

Chapter 15 Risk Measures and Their Applications in Asset Management / S. Ilker Birbil, Hans Frenk, Bahar Kaynar, Nilay Noyan 311

Introduction 312

Risk Measures 315

A Single-Period Portfolio Optimization Problem 320

Elliptical World 324

Modified Michelot Algorithm 328

Computational Results 331

Conclusion 336

References 336

Chapter 16 Risk Evaluation of Sectors Traded at the ISE with VaR Analysis / Mehmet Orhan, Gokhan Karaahmet 339

Introduction 339

Value-at-Risk Comparison of Sectors Traded at the Istanbul Stock Exchange (ISE) 343

Performance of VaR in Evaluating Risk 350

Conclusion 356

References 357

Part 3 Modeling

Chapter 17 Aggregating and Combining Ratings / Rafael Weib bach, Frederik Kramer, Claudia Lawrenz 361

Introduction 362

Mathematical Background 364

Aggregating Ratings 365

Impact Studies 367

Conclusion 379

References 381

Chapter 18 Risk-Managing the Uncertainty in VaR Model Parameters / Jason C. Hsu, Vitali Kalesnik 385

The Subprime Crisis of 2008 386

Parameter Uncertainty 389

An Illustrative Example with Mean Uncertainty 390

An Illustrative Example with Variance Uncertainty 394

An Illustrative Example with Correlation Uncertainty 396

Conclusion 398

Acknowledgment 400

References 400

Chapter 19 Structural Credit Modeling and Its Relationship To Market Value at Risk: An Australian Sectoral Perspective / David E. Allen, Robert Powell 403

Introduction 404

Structural Model 406

Methodology 407

Results 410

Conclusion 412

References 412

Chapter 20 Model Risk in VAR Calculations / Peter Schaller 415

Introduction 415

Sources of Model Risk 416

Backtesting 420

Bias versus Uncertainty 422

Pivotal Quantile Estimates 428

Applications 432

Conclusion 436

References 436

Chapter 21 Option Pricing with Constant and Time-Varying Volatility / Willi Semmler, Karim M. Youssef 439

Introduction 439

The Black-Scholes PDE 441

Solution Methods 444

What We Get and What We Do Not Get from Black-Scholes 447

Seeking Sigma 448

Historical Volatility 449

GARCH(1,1) 450

Heston's Volatility 452

The Heston Valuation Equation 453

Calibrating the Heston Parameters and Results 457

Conclusion 460

References 460

Chapter 22 Value at Risk under Heterogeneous Investment Horizons and Spatial Relations / Viviana Fernandez 463

Introduction 464

Methodological Issues 466

Empirical Testing of Spatial Linkages 471

Conclusion 480

References 481

Chapter 23 How Investors Face Financial Risk Loss Aversion and Wealth Allocation with Two-Dimensional Individual Utility: A VaR Application / Erick W. Rengifo, Emanuela Trifan 485

Introduction 486

Theoretical Model 487

Application 500

Conclusion 510

References 511.

Notes:

Series from jacket.

Includes bibliographical references and index.

ISBN:

9780071615136

007161513X

OCLC:

302066786