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Risk Management Under A Factor Stochastic Volatility Model

Author

Listed:
  • MARCOS ESCOBAR

    (Department of Mathematics, Ryerson University, Canada)

  • PABLO OLIVARES

    (Department of Mathematics, Ryerson University, Canada)

Abstract

In this paper, we study risk measures and portfolio problems based on a Stochastic Volatility Factor Model (SVFM). We analyze the sensitivity of Value at Risk (VaR) and Expected Shortfall (ES) to the changes in the parameters of the model. We compare the positions of a linear portfolio under assets following a SVFM, a Black–Scholes Model and a model with constant dependence structure. We consider an application to a portfolio of three selected Asian funds.

Suggested Citation

  • Marcos Escobar & Pablo Olivares, 2011. "Risk Management Under A Factor Stochastic Volatility Model," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 28(01), pages 65-80.
    • Handle: RePEc:wsi:apjorx:v:28:y:2011:i:01:n:s0217595911003053
    DOI: 10.1142/S0217595911003053
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    References listed on IDEAS

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    1. Alexander Alvarez & Marcos Escobar & Pablo Olivares, 2011. "Pricing two dimensional derivatives under stochastic correlation," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(4), pages 265-287.
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    Cited by:

    1. Shuang Xiao & Guo Li & Yunjing Jia, 2017. "Estimating the Constant Elasticity of Variance Model with Data-Driven Markov Chain Monte Carlo Methods," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-23, February.

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