HullRMFI3rdEdCh09risk management and financial institutions PPT幻灯片课件.pptVIP

Choice of VaR Parameters Time horizon should depend on how quickly portfolio can be unwound. Bank regulators in effect use 1-day for market risk and 1-year for credit/operational risk. Fund managers often use one month Confidence level depends on objectives. Regulators use 99% for market risk and 99.9% for credit/operational risk. A bank wanting to maintain a AA credit rating might use confidence levels as high as 99.97% for internal calculations. Risk Management and Financial Institutions 3e, Chapter 9, Copyright ? John C. Hull 2012 * VaR Measures for a Portfolio where an amount xi is invested in the ith component of the portfolio (196) Marginal VaR: Incremental VaR: Incremental effect of the ith component on VaR Component VaR: Risk Management and Financial Institutions 3e, Chapter 9, Copyright ? John C. Hull 2012 * Properties of Component VaR The component VaR is approximately the same as the incremental VaR The total VaR is the sum of the component VaR’s (Euler’s theorem) The component VaR therefore provides a sensible way of allocating VaR to different activities Risk Management and Financial Institutions 3e, Chapter 9, Copyright ? John C. Hull 2012 * Aggregating VaRs An approximate approach that seems to works well is where VaRi is the VaR for the ith segment, VaRtotal is the total VaR, and rij is the coefficient of correlation between losses from the ith and jth segments Risk Management and Financial Institutions 3e, Chapter 9, Copyright ? John C. Hull 2012 * Back-testing (200) Back-testing a VaR calculation methodology involves looking at how often exceptions (loss VaR) occur Alternatives: a) compare VaR with actual change in portfolio value and b) compare VaR with change in portfolio value assuming no change in portfolio composition Suppose that the theoretical probability of an exception is p (=1?X). The probability of m or more exceptions in n days is Risk Management and Financial Institutions 3e, Chapter 9, Copyright ? John C. Hull 2012