--%>
Assignment Help - homework help

Example of traditional Value at Risk

Illustrates an example of traditional Value at Risk by Artzner et al?

E

Expert

Verified

Artzner et al. (1997) provide a simple example of traditional VaR that violates this, and exemplifies perfectly the problems of measures which are not coherent. Portfolio X contains only a far out-of-the-money put along with one day to expiry. Portfolio Y contains only a far out-of-the-money call with one day to expiry. Let us assume that every option has a probability of 4 percent of ending up in the money. For all options individually, at the 95 percent confidence level the one-day traditional VaR is efficiently zero. At this instant put the two portfolios together and there is a 92 percent chance of not losing anything, 100 percent less two lots of 4 percent. Therefore at the 95 percent confidence level there will be an important VaR. Putting the two portfolios together has in this illustration increased the risk.

   Related Questions in Financial Management

  • Q : Strong-form efficiency in Efficient

    Explain Strong-form efficiency in Efficient Markets Hypothesis.

    		•
  • Q : Describe criteria for a good

    Describe criteria for a ‘good' international monetary system.A good international monetary system have to provide (I) adequate liquidity to the world economy, (ii) s

    		•
  • Q : Reversing trade in forward markets Why

    Why are most futures positions closed out through a reversing trade instead of held to delivery?In forward markets, about 90 percent of all contracts that are primarily established result in the short making delivery to the long of the asset und

    		•
  • Q : Three most important sections of the

    Describe the three most important sections of the cash flows statement?

    		•
  • Q : Venture capital valuation method

    venture capital valuation method a venture capitalist wants to estimate the value of a new venture. the venture is not expected to produce net income or earnings until the end of year 5 when the net income is estimated at 1,600,000.00. A publicly traded competitor or comparable firm has current ea

    		•
  • Q : Balance sheet What are the time

    What are the time dimensions of the balance sheet, the income statement and the statement of cash flows?

    		•
  • Q : Is there margin option on long positions

    Is there margin option on long positions? Explain.

    		•
  • Q : Which numerical method should you use

    You need to price a fixed-income contract by using the BGM model. Which numerical method should you use?

    		•
  • Q : What are the characteristics of

    What are the characteristics of calibration?

    		•
  • Q : Bidding You are required to submit a

    You are required to submit a bid to supply 200,000,000 widgets per year to the State of Illinois for the next five years. Your company has an idle tract of real estate that cost $1,500,000 ten years ago; if your company sold the land today, it would generate $3,000,000 after the taxes were paid. The

    		•