By Kevin Dowd

ISBN-10: 0470847484

ISBN-13: 9780470847480

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

An advent to industry hazard Measurement comprises insurance of:

  • Parametric and non-parametric probability estimation

  • Simulation

  • Numerical tools

  • Liquidity hazards

  • Risk Decomposition and Budgeting

  • Backtesting

  • Stress trying out

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

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Additional info for An Introduction to Market Risk Measurement (The Wiley Finance Series)

Sample text

65–66)) 13 Quoted in Chew (1994, p. 66). 8 An Introduction to Market Risk Measurement it was becoming increasingly difficult, but also increasingly important, to be able to aggregate their risks, taking account of how they interact with each other, and firms lacked the methodology to do so. The best known of these systems is the RiskMetrics system developed by JP Morgan. According to industry legend, this system is said to have originated when the chairman of JP Morgan, Dennis Weatherstone, asked his staff to give him a daily one-page report indicating risk and potential losses over the next 24 hours, across the bank’s entire trading portfolio.

645. 645. 645. 645 can then be described as the value at risk (or VaR) of our portfolio at the 95% level of confidence, and we will have more to say about this presently. The assumption that P/L is normally distributed is attractive for three reasons. The first is that it often has some, albeit limited, plausibility in circumstances where we can appeal to the central limit theorem. 2 Normal quantiles and probabilities. 645). , the ‘normsinv’ function in Excel or the ‘norminv’ function in MATLAB).

9 A VaR surface. Note: Produced using the ‘normalvarplot3D’ function. 7 Under the 1996 Amendment to the Basle Accord, institutions judged to have sound risk management practices are allowed the option of having their capital requirements determined by their own VaR estimates. This is known as the ‘internal models’ approach to regulatory capital requirements. The effective daily capital requirement is the maximum of the previous day’s VaR and k times the average of the daily VaR over the last 60 days, where k is a multiplier in the range between 3 and 4.

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An Introduction to Market Risk Measurement (The Wiley Finance Series) by Kevin Dowd

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