Delta-normal method
From ACT Wiki
Jump to navigationJump to search
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.
