By Kevin Dowd
This booklet offers an advent to price in danger (VaR) and anticipated tail loss (ETL) estimation and is a student-oriented model of Measuring industry Risk (John Wiley & Sons 2002).
An advent to industry danger Measurement contains assurance of:
- Parametric and non-parametric chance estimation
- Numerical tools
- Liquidity hazards
- Risk Decomposition and Budgeting
- Stress trying out
- Model chance
Read or Download An Introduction to Market Risk Measurement (The Wiley Finance Series) PDF
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Additional resources for An Introduction to Market Risk Measurement (The Wiley Finance Series)
In particular, they can be used to tell institutions how to comply with such regulations whilst rearranging their portfolios to minimise the burden that such regulations impose on them. 3 Limitations of VaR as a Risk Measure VaR also has its drawbacks as a risk measure. , the risk of errors arising from the way in which systems are implemented). However, such problems are common to all risk measurement systems, and are not unique to VaR. 1 VaR Uninformative of Tail Losses Yet VaR does have its own distinctive limitations.
First-order stochastic dominance therefore implies that the distribution function for X 1 is never above the distribution function for X 2 , second-order stochastic dominance implies that their second-degree distribution functions do not cross, and so on. Since a risk measure with nth-degree stochastic dominance is also consistent with higher degrees of stochastic dominance, we can say that ﬁrst-order stochastic dominance implies second and higher orders of stochastic dominance, but not the reverse.
Counterparty default risk on OTC positions), and these too can be determined using an internal models approach. Even if we grant that there is any need for regulatory capital requirements in the ﬁrst place — and I would suggest there isn’t — then perhaps the best thing we can say about the internal models approach is that it does at least make some effort to tie capital requirements to a reasonably respectable measure of market risk. Unfortunately, it does so in a very arbitrary and indefensible way.