Worst fluctuation method for fast value-at-risk estimates

20 September 1999

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We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard to solve numerically, and should allow fast VaR and ΔVaR estimates of large portfolios, where by construction the influence of rare events is taken into account reliably. Our method can be seen as a correctly probabilised 'scenario' calculation (or 'stress-testing').


Adam Rej , Marc Potters

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