Beruflich Dokumente
Kultur Dokumente
Assignment No.1
1.
Introduction
2.
1.Historical Method:
The historical method simply re-organizes actual historical
returns, putting them in order from worst to best. It then assumes
that history will repeat itself, from a risk perspective.
3.Monte-Carlo Simulation:
The third method involves developing a model for future stock
price returns and running multiple hypothetical trials through the
model. A Monte Carlo simulation refers to any method that
randomly generates trials, but by itself does not tell us anything
about the underlying methodology.
VaR for credit risk. Basel Accords suggests 10- day holding period
for market risk, though country regulators may prescribe higher
holding period. In case of credit risk, duration of holding period is
generally one-year.
4.
5.
Regulatory Requirements
6.
Descriptive Statistics
Return Series :
It can be easily found from excel function STDEV which shows the
volatility of the portfolio.
Using this formula, the standard deviation series can be found
out.
Now, one-day VaR can be calculated as:
Capital Requirements :
Margin or Capital Requirement = Maximum of VaR(t-1) ,
Avg.VaR(60 Days) * 3.33
7.
Backtesting
Method-2
Exponential Weighted Average
Method
In this method, Variance of the portfolio is calculated by using
following formula :
Ht = 0.94 * H(t-1) + 0.06 * Return^2
By running the data in excel, we get 11 Failure Events.
Failure Events :
Measure
Failure Events
250 day VaR
Cumulative VaR
12
5
Conclusion :
The model for calculating VaR is perfectly capable of predicting
VaR as per the Basel Norms.