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Worst fluctuation method for fast value-at-risk estimates

Author

Listed:
  • Jean-Philippe Bouchaud

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

  • Marc Potters

    (Science & Finance, Capital Fund Management)

Abstract

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').

Suggested Citation

  • Jean-Philippe Bouchaud & Marc Potters, 1999. "Worst fluctuation method for fast value-at-risk estimates," Science & Finance (CFM) working paper archive 9909245, Science & Finance, Capital Fund Management.
  • Handle: RePEc:sfi:sfiwpa:9909245
    as

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    References listed on IDEAS

    as
    1. 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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    Cited by:

    1. J. Doyne Farmer, 1999. "Physicists Attempt to Scale the Ivory Towers of Finance," Working Papers 99-10-073, Santa Fe Institute.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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