Worse fluctuation method for fast Value-at-Risk estimates

Details Worse fluctuation method for fast Value-at-Risk estimates Worse fluctuation method for fast Value-at-Risk estimates

1999-09-16

arxiv.org/abs/cond-mat/9909245v1

Physics

Condensed Matter

LaTeX no figures

Scientific paper

We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard to solve numerically, and should allow fast VaR and $\Delta$VaR estimates of large portfolios, where {\it by construction} the influence of rare events is taken into account reliably. Our method can be seen as a correctly probabilized `scenario' calculation (or `stress-testing').

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