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...

Value at Risk Models

Market risk as we have already looked at arises from positions that are mismatched. Even brokers who in theory act as middlemen and should not have market risk will end up holding risky positions during the course of trading and market making. A broker may also put on...

Market Risk in Banking

Market Risk in Banking When compared to funds the risk that banks have are slightly different. Namely : –      Their loan book (Assets) may be quite illiquid –      Funding sources (call deposits) can be outside the banks control Identification We talked...

Introduction to Market Risk

Market risk is the change in the value of financial instruments from fluctuations in the market place where they are traded. This is fairly straight forward when dealing with liquid markets , but can be more difficult to quantify in illiquid markets. This is...