Value At Risk Incorporating Dynamic Portfolio Management
Value at Risk calculations traditionally assume a fixed portfolio. However, occasionally, over a medium term horizon, a particular model of trading behavior is applicable and a dynamic portfolio should be considered for accurate VaR calculation. In this paper I describe a Monte Carlo simulation technique to calculate the distribution of portfolio returns over a several day horizon. I develop a bootstrap method for generating simulated returns from the underlying financial instruments, as well as investigate the theoretical statistical properties of the estimates. At each stage of the calculation, several behavioral trading models are considered to test the effect of back office restrictions on a portfolio manager's risk exposure. Finally, using daily currency rates, the model is tested empirically for estimation accuracy.
|Date of creation:||05 Jul 2000|
|Contact details of provider:|| Postal: CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain|
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- Robert Engle & Simone Manganelli, 2000. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Econometric Society World Congress 2000 Contributed Papers 0841, Econometric Society.
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