Hands-On Value-at-Risk and Expected Shortfall: A Practical Primer

Description

This book describes a maximally simple market risk model that is still practical and main risk measures like the value-at-risk and the expected shortfall. It outlines the model's (i) underlying math, (ii) daily operation, and (iii) implementation, while stripping away statistical overhead to keep the concepts accessible. The author selects and weighs the various model features, motivating the choices under real-world constraints, and addresses the evermore important handling of regulatory requirements. The book targets not only practitioners new to the field but also experienced market risk operators by suggesting useful data analysis procedures and implementation details. It furthermore addresses market risk consumers such as managers, traders, and compliance officers by making the model behavior intuitively transparent. A very useful guide to the theoretical and practical aspects of implementing and operating a risk-monitoring system for a mid-size financial institution. It sets a common body of knowledge to facilitate communication between risk managers, computer and investment specialists by bridging their diverse backgrounds. Giovanni Barone-Adesi — Professor, Universitá della Svizzera italiana This unassuming and insightful book starts from the basics and plainly brings the reader up to speed on both theory and implementation. Shane Hegarty — Director Trade Floor Risk Management, Scotiabank Visit the book’s website at www.value-at-risk.com. Front Matter ....Pages i-xviii Introduction (Martin Auer)....Pages 1-2 Motivation (Martin Auer)....Pages 3-9 Front Matter ....Pages 11-11 Basic Terms and Notation (Martin Auer)....Pages 13-19 Historical Value-at-Risk (Martin Auer)....Pages 21-26 Sensitivities (Martin Auer)....Pages 27-31 Stress Tests (Martin Auer)....Pages 33-34 Analytical Value-at-Risk (Martin Auer)....Pages 35-38 Expected Shortfall (Martin Auer)....Pages 39-40 Model Choices (Martin Auer)....Pages 41-48 A Monte Carlo Modification (Martin Auer)....Pages 49-52 Support Measures (Martin Auer)....Pages 53-58 Front Matter ....Pages 59-59 Properties of VaR (Martin Auer)....Pages 61-64 Properties of ES (Martin Auer)....Pages 65-68 VaR Noise (Martin Auer)....Pages 69-72 Backtesting (Martin Auer)....Pages 73-76 Distribution Tests (Martin Auer)....Pages 77-82 Nine to Five (Martin Auer)....Pages 83-96 Front Matter ....Pages 97-97 Context (Martin Auer)....Pages 99-101 Scope and Workflow (Martin Auer)....Pages 103-108 Implementation (Martin Auer)....Pages 109-120 Front Matter ....Pages 121-121 Conclusion (Martin Auer)....Pages 123-123 Back Matter ....Pages 125-169