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...

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...