财务风险相关管理CH15.pptx

Market Risk VaR: Model-Building ApproachChapter 15The Model-Building ApproachThe main alternative to historical simulation is to make assumptions about the probability distributions of the returns on the market variablesThis is known as the model building approach (or sometimes the variance-covariance approach)Microsoft Example (324)We have a position worth $10 million in Microsoft sharesThe volatility of Microsoft is 2% per day (about 32% per year)We use N=10 and X=99Microsoft Example continuedThe standard deviation of the change in the portfolio in 1 day is $200,000The standard deviation of the change in 10 days is Microsoft Example continuedWe assume that the expected change in the value of the portfolio is zero (This is OK for short time periods)We assume that the change in the value of the portfolio is normally distributedSince N(–2.33)=0.01, the VaR is ATT ExampleConsider a position of $5 million in ATTThe daily volatility of ATT is 1% (approx 16% per year)The SD per 10 days isThe VaR isPortfolio (page 325)Now consider a portfolio consisting of both Microsoft and ATTSuppose that the correlation between the returns is 0.3S.D. of PortfolioA standard result in statistics states thatIn this case sX = 200,000 and sY = 50,000 and r = 0.3. The standard deviation of the change in the portfolio value in one day is therefore 220,227The Linear ModelWe assumeThe daily change in the value of a portfolio is linearly related to the daily returns from market variablesThe returns from the market variables are normally distributedMarkowitz Result for Variance of Return on PortfolioCorresponding Result for Variance of Portfolio Value si is the daily volatility of the ith asset (i.e., SD of daily returns)sP is the SD of the change in the portfolio value per dayai =wi P is amount invested in ith asset Covariance Matrix (vari = covii)(page 328)Alternative Expressions for sP2page 328Four Index Example Using Last 500 Days of Data to Estimate Covariances Equal Weight EWMA :l=0.94One-