Delta-normal method: Difference between revisions
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If this is the case, the following assumptions are being made: | If this is the case, the following assumptions are being made: | ||
o Past data on portfolio value changes or returns are normally distributed; and | o Past data on portfolio value changes or returns are normally distributed; and | ||
o The future will mirror the past, in the sense that the distributions of market rates or other environmental parameters (and the correlations between them, where relevant) will not change. | o The future will mirror the past, in the sense that the distributions of market rates or other environmental parameters (and the correlations between them, where relevant) will not change. | ||
Also known as the Variance-Covariance method. | Also known as the Variance-Covariance method. | ||
== See also == | == See also == | ||
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* [[Value at risk]] | * [[Value at risk]] | ||
* [[Variance]] | * [[Variance]] | ||
[[Category:Risk_frameworks]] | |||
Latest revision as of 14:13, 9 October 2013
In Value at Risk analysis, an approach to calculating the underlying probability distribution. To execute it usually requires one to estimate the means, variances and correlation coefficients from historical data.
If this is the case, the following assumptions are being made:
o Past data on portfolio value changes or returns are normally distributed; and
o The future will mirror the past, in the sense that the distributions of market rates or other environmental parameters (and the correlations between them, where relevant) will not change.
Also known as the Variance-Covariance method.
