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Application of Granularity Adjustment Approximation Method to Incremental Value-at-Risk in Concentrated Portfolios

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  • Yu Takata

    (Sumitomo Mitsui Trust Research Institute)

Abstract

Most financial institutions use credit value-at-risk (VaR) produced by Monte-Carlo simulation or analytical approximation. While Monte-Carlo simulation needs large computational resources, and many approximation formulas have been proposed. We discuss the granularity adjustment approximation, and apply it to calculating incremental VaR. Through numerical experiments we show that we can obtain better approximation results by the granularity adjustment formula concerning incremental VaR.

Suggested Citation

  • Yu Takata, 2018. "Application of Granularity Adjustment Approximation Method to Incremental Value-at-Risk in Concentrated Portfolios," Economics Bulletin, AccessEcon, vol. 38(4), pages 2320-2330.
    • Handle: RePEc:ebl:ecbull:eb-18-00874
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    References listed on IDEAS

    as
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    4. Susanne Emmer & Dirk Tasche, . "Calculating credit risk capital charges with the one-factor model," Journal of Risk, Journal of Risk.
    5. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
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    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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