Cutting Edge introduction: risky contributions

Risky contributions

chalkboard model

The calculation of risk measures such as value-at-risk – which continues to be widely used despite its shortcomings – is vital to risk management. Quants tend to calculate them in numerical fashion, usually via Monte Carlo simulation, because the functions themselves tend to resist direct formulas. For instance, VAR is a quantile of the underlying returns distribution, which is hard to write down directly.

The exception comes when sensitivities are used as a starting place – with a risk measure

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