FRTB : A Summary of the Regulations

FRTB Summary The Fundamental Review of the trading book or FRTB regulations had the final paper released by the BIS on the 15th Jan 2016. You can download this paper here for your perusal, but read on to get a short and succint summary. I will be posting more more...

Risk Factor Mapping

Mapping a Position to a Risk factor So far we have assumed that each position in a portfolio is matched directly to an underlying risk factor (see Analytical VaR post). However in practice this may not be feasible or even desirable. The market practice is to map each...

Historical Simulation VaR – Easy Guide

Historical Simulation VaR The Historical Simulation VaR approach is the third approach to value at risk and quite a popular approach in banking institutions along with Monte Carlo. The main point here to remember is that the historical simulation does not make any...

Monte Carlo VaR

Monte Carlo  VaR Given the limitations of the Analytic risk model we can look at other approaches to Value at risk. A very natural approach to consider is using a Monte Carlo VaR Simulation. Monte Carlo simulation will be able to cope with stochastic jumps and...

Analytical VaR

This method is used mainly for linear products – spot and futures products. Linear VAR cannot be used to quantify the risk of derivatives as the model cannot take into account higher order risks such as gamma and vega. This method is also referred to as the...