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MEASURING AND MANAGING MARKET RISK - Coggle Diagram
MEASURING AND MANAGING MARKET RISK
Value at risk (Var)
The minimum loss that would be expected a certain percentage of the time over a certain period of time given the assumed market conditions.
The parametric(variance-covariance)method
tính E(rp
tính Standard deviation của port
xong tính X= z*xích ma + meaan
Simple to apply under the assumption of normally distributed returns.
Limited usefulness when the portfolio contains options
The historical simulation method
không giả định trước là phân phối chuẩn
chọn x% left tail
The Monte Carlo Simulation method
The estimation has many uncertain variables
Portfolios with large amount of assets and risk factors
Complex portfolios consist of options
Define an equation that brings the output and input variables together. - > dertermine input value -> create sample dataset -> Sort the outcomes from worst to best and select the point for desiring VaR
Risk decomposition -> Gathering data history -> Make an estimate of the VaR
Advantages
Simple concept
Easily communicated concept
Provides a basis for risk comparison
Facilitates capital allocation decisions
Can be used for performance evaluation
Reliability can be verified
Widely accepted by regulators
Limitations
Subjectivity
Underestimating the frequency of extreme events
Failure to take into account liquidity
Sensitivity to correlation risk
Misunderstanding the meaning of VaR
Oversimplification
Disregard of right-tail events
Conditional VaR (CVaR)
The expected loss, given that the loss is equal to or greater than the VaR.
Khi xảy ra 5% xấu nhất, lỗ trung bình là bao nhiêu
2 pp historical vs monte carlo dễ tính Cvar hơn
Incremental VaR
Thay đổi của var khi security thay đổi
Marginal Var
khi weight tăng thì var tăng bao nhiêu %
Ex-ante tracking error/ Relative Var
The VaR of the difference between the return on a portfolio and the return on its manager’s benchmark portfolio.
Sensitivity Risk Measures
Equity Exposure Measures -Beta
β measures the sensitivity of the security’s expected return to the equity risk premium.
Fixed-Income Exposure Measures – Duration & Convexity
The duration is a measure of the sensitivity of the bond price to the interest rate change that characterizes all rates.
To accommodate longer periods of time and larger yield change, we incorporate convexity
Option Risk Measures
Delta
Delta is a measure of the sensitivity of the option value to underlying asset price change.
Gamma measures how Delta changes when the value of the underlying changes.
A third important sensitivity measure for options is vega , and it reflects the effect of volatility to the value of the option.
Scenario Risk Measures
Scenario Analysis is the method of estimating the effect on portfolio value made by a set of changes of significant magnitude in multiple risk factor.
A historical scenario approach uses a set of changes in risk factors that have actually occurred in the past,especially changes during a period of financial disruption and stress.
Hypothetical Scenario
Stress tests
The process of applying extreme negative stress to a particular portfolio exposure.
Reverse stress testing
The process of targeting portfolio’s material exposures and assessing their behavior in various environment.
cho kết quả trước rồi phân tích rủi ro