16.1 Value at risk Chapter 16 Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 16.1 Value at Risk Chapter 16
16.2 The Question Being Asked in Var What loss level is such that we are y% confident it will not be exceeded in n business days?” Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 16.2 The Question Being Asked in VaR “What loss level is such that we are X% confident it will not be exceeded in N business days?
16.3 VaR and regulatory capital Regulators base the capital they require banks to keep on VaR The market-risk capital is k times the 10 day 99% var where k is at least 3.0 Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 16.3 VaR and Regulatory Capital • Regulators base the capital they require banks to keep on VaR • The market-risk capital is k times the 10- day 99% VaR where k is at least 3.0
16.4 VaRⅴs.CVaR (See Figures 16.1 and 16.2) Var is the loss level that will not be exceeded with a specified probability C-VaR is the expected loss given that the loss is greater than the var level Although C-Var is theoretically more appealing, it is not widely used Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 16.4 VaR vs. C-VaR (See Figures 16.1 and 16.2) • VaR is the loss level that will not be exceeded with a specified probability • C-VaR is the expected loss given that the loss is greater than the VaR level • Although C-VaR is theoretically more appealing, it is not widely used
16.5 Advantages of vaR It captures an important aspect of risk in a single number It is easy to understand It asks the simple question: How bad can things get?” Options, Futures, and other Derivatives, 5th edition 2002 by John C. Hull
Options, Futures, and Other Derivatives, 5th edition © 2002 by John C. Hull 16.5 Advantages of VaR • It captures an important aspect of risk in a single number • It is easy to understand • It asks the simple question: “How bad can things get?