Historical simulation method: Difference between revisions
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imported>Doug Williamson m (Category added 9/10/13) |
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Finally, tabulate the empirical distribution of one-day value changes and identify the lower 95% point. This point is the one-day 95% VaR. | Finally, tabulate the empirical distribution of one-day value changes and identify the lower 95% point. This point is the one-day 95% VaR. | ||
== See also == | == See also == | ||
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* [[Monte Carlo method]] | * [[Monte Carlo method]] | ||
* [[Value at risk]] | * [[Value at risk]] | ||
[[Category:Risk_frameworks]] | |||
Revision as of 14:13, 9 October 2013
In Value at Risk analysis, an alternative to the Delta-normal method of calculating the underlying probability distribution.
This is conceptually the simplest alternative method to the delta-normal. There is no assumption about how markets operate.
For any given portfolio held today, you calculate repeatedly its hypothetical value change as if it had been held for a one day period in the past, using the relevant market price changes and other market rate changes for each successive day.
At each step, you do a full valuation and calculate the ex-post or historical value changes over one day.
Finally, tabulate the empirical distribution of one-day value changes and identify the lower 95% point. This point is the one-day 95% VaR.
