Intro to Quant Finance: Value at Risk (VaR)
Posted by admin | Posted in Finance | Posted on 09-09-2009
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The basic approach to VaR is delta normal: a scaled standard deviation
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Dear Mr. Harper,
I am really a great fan of yours. I have really learned a lot from these sort of videos from you.
Please keep uploading these, I have recommended many friends of that.
Thanks n Regards,
Samran Habib
Dubai
UAE
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Statistical functions are available in excel.
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I have question. How did you draw that normal distribution graph in the excel?
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Thanks Aviad, I appreciate that.
And I agree, I am showing the so-called absolute VaR without reference to the mean; which is sort of okay for short trading (daily or less) periods. But yours (so-called relative VaR) is just better as it is the general case and treats VaR as the unexpected loss. Thanks for making this point!
David
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David,
Thanks for posting these videos. I’d like to point out one oversight in this illustration. When the mean is non-zero (here, it is -0.71%), you must take it into account. So in your spreadsheet, C18 should =C14+C16*C17.
Of course, the mean is commonly approximately zero and can be ignored, but in this example it’s worth including.
Thanks again for posting these videos, they are useful!
Aviad
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I liked it. Very informative staff.
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All righty… Now my mind is settled..
I have burned the midnightoil here in Denmark whit thiese sort of issues the last 2 weeks.. And its great 2 watch someone else practise thiese issues, so I can see it from anohter proff.s point off wiev… So you just keep doing the fine job…
Salut from DK….
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Hi Mahyar: History informs params but that’s all: it gives us average & volatility. But then I don’t use history, i.e., for normal (parameteric) distribution. I use only the smooth (but unrealistic) curve. A HISTORICAL SIM has NO params. For historical sim, you only need to SORT the historical return and look down the list to 95th-99th %ile, etc. You have a point, under most VaR approaches, historical series at least implicitly informs going-forward model. Thanks for viewing!
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Hello mister David..
I have difficult to differ the delta normal approach from the historical distribution..
The pracsis you are performing in this video is much alike the historical distribution??
Mahyar, Denmark.
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cool brow…
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Nice brow…