Historical simulation method: Difference between revisions
imported>Doug Williamson m (Category added 9/10/13) |
imported>Doug Williamson (Expand.) |
||
| Line 1: | Line 1: | ||
1. | |||
In Value at Risk analysis, an alternative to the Delta-normal method of calculating the underlying probability distribution. | In Value at Risk analysis, an alternative to the Delta-normal method of calculating the underlying probability distribution. | ||
| Line 8: | Line 10: | ||
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. | ||
2. | |||
Similar methods in other risk analysis applications. | |||
Revision as of 14:01, 14 August 2016
1.
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.
2.
Similar methods in other risk analysis applications.
