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Worst fluctuation method for fast value-at-risk estimates

  • Jean-Philippe Bouchaud

    (Science & Finance, Capital Fund Management
    CEA Saclay;)

  • Marc Potters

    (Science & Finance, Capital Fund Management)

We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard to solve numerically, and should allow fast VaR and Delta-VaR estimates of large portfolios, where by construction the influence of rare events is taken into account reliably. Our method can be seen as a correctly probabilized `scenario' calculation (or `stress-testing').

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Paper provided by Science & Finance, Capital Fund Management in its series Science & Finance (CFM) working paper archive with number 9909245.

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Date of creation: Sep 1999
Date of revision:
Publication status: Forthcoming
Handle: RePEc:sfi:sfiwpa:9909245
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  1. Michel M. Dacorogna, & Ulrich A. Muller & Olivier V. Pictet & Casper De Vries,, . "The Distribution of Extremal Foreign Exchange Rate Returns in Extremely Large Data Sets," Working Papers 1992-10-22, Olsen and Associates.
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