Worst fluctuation method for fast value-at-risk estimates
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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|Date of creation:||Sep 1999|
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- Michel M. Dacorogna, & Ulrich A. Muller & Olivier V. Pictet & Casper De Vries,, "undated". "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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