Talk:Value at risk

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Is the VCV matrix the same as the covariance matrix used in the VCV model? This point needs to be clarified - Gauge 22:52, 20 Aug 2004 (UTC)

Contents 1 Signs Error 2 Historical Sim 3 Four Parameters? 4 VaR(A+B) > VaR(A)+VaR(B) 5 This page is a disgrace

[edit] Signs Error

It seems to me the formula in calculation part (2) subsection (iii) should be: VaR = V_p * (mu - sigma*z). Else a portfolio with positive mean is penalized. You can still throw a minus sign in front if you prefer to think of VaR in terms of loss rather than dollars at risk.

[edit] Historical Sim

just me or does the historical sim section say assume 2.33 Sig for a 99% distribution --assuming gaussian surely? —Preceding unsigned comment added by 86.154.88.140 (talk) 22:12, 26 February 2008 (UTC)

[edit] Four Parameters?

The article says VaR has four parameters but then lists only three, and goes on to talk about two? Is there a missing parameter or should this just say three/two parameters. Hull says two parameters (currency is ignored since you can just change that at spot).

[edit] VaR(A+B) > VaR(A)+VaR(B)

It is stated in the article that it is impossible to construct two portfolios so that VaR(A+B) > VaR(A)+VaR(B). I have an article of Jón Daníelson [Journal of Banking & Finance, 2002, 26(7), 1273-1296] stating that there are Portfolios which have this property. Has somebody some knowledge? (I am no finance expert myself, so please forgive if it is a stupid question).

Rpkrawczyk 15:13, 19 January 2007 (UTC)

Sure. Take two bonds which are independent and default by some horizon with probability 0.03. Now make three portfolios; portfolio A invests $1 in bond #1, portfolio B invests $1 in bond #1, portfolio C invests $1 in bond #1 and $1 in bond #2. 95% VaR(A) and 95% VaR(B) both equal $0 -- because 95% of the time the bonds lose no money. 95% VaR(C) = 95% VaR(A+B) = $1 > 95% VaR(A) + 95% VaR(B). (P(no defaults = 0.9409, P(1 default) = 0.0582, P(2 defaults) = 0.0009)

What I'm wondering is why reference the paper as "Artzner et al" when many people coming here won't know the full authorship; and, the paper is high-profile enough to warrant mentioning all authors (Artzner, Delbaen, Eber, and Heath)--Cumulant (talk) 13:59, 20 January 2008 (UTC)

[edit] This page is a disgrace

The normal distribution should be opposed in all its forms! —Preceding unsigned comment added by 81.149.250.228 (talk) 17:12, 22 October 2007 (UTC)

While I understand the point made repeatedly by 81.149.250.228 (I have read Mandelbrot's book about markets too), it seems his additions are non-encyclopedic in the nature. If only someone could elaborate on VaR criticism even more and in the encyclopedic manner... for the time being I dare to revert page once again. Ruziklan 08:14, 23 October 2007 (UTC)

If you have read the book, you should write on the Normal Distribution article. Refer to the talk section titled Mandelbrot. Nshuks7 (talk) 10:31, 7 December 2007 (UTC)

Taleb's article in LSE ([1]) states two problems which can be included in this section:

1. Measuring probabilities of rare events requires study of vast amounts of data. For example, the probability of an event that occurs once a year can be studied by taking 4-5 years of data. But high risk-low probability events like natural calamities, epidemics and economic disasters (like the Crash of 1929) are once a century events which require at least 2-3 centuries of data for validating hypothesis. Since such data does not exist in the first place, it is argued, estimating risk probabilities is not possible.

2. In the derivation of VaR normal distributions are assumed wherever the frequency of events is uncertain. (needs improvement)Nshuks7 (talk) 17:33, 7 December 2007 (UTC)