Monte Carlo simulation

VAR: history or simulation?

Greg Lambadiaris, Louiza Papadopoulou, George Skiadopoulos and Yiannis Zoulis assess theperformance of historical and Monte Carlo simulation in calculating VAR, using data from theGreek stock and bond market. They find that while historical simulation…

A true test for value-at-risk

The three classic approaches for measuring portfolio value-at-risk do not compare like with like, argues Richard Sage. Here he presents a test portfolio to highlight the differences between calculation methods

How to spot a VaR cheat

Traders can use weaknesses in VaR measurement to make it appear that they are not taking any risks. Brett Humphreys exposes how easily this can be done

Project risk: improving Monte Carlo value-at-risk

Cashflows from projects and other structured deals can be as complicated as we are willing to allow, but the complexities of Monte Carlo project modelling need not complicate value-at-risk calculation. Here, Andrew Klinger imports least-squares valuation…

Margin notes

Brett Humphreys explains how to measure and manage margin risk, an often-overlooked – yet often-significant – risk exposure

Asian basket spreads and other exotic averaging options

Giuseppe Castellacci and Michael Siclari of OpenLink introduce a class of exotic options that simultaneously generalises both Asian and basket options. They develop approximate analytic models for real-time pricing of complex instruments that average…

Waiting for guidance

South Korea's banks have made huge strides in implementing risk management systems over the past few years, but Basel II is not yet a driving force, with banks waiting for the Korean regulator to publish local guidelines.

Enough’s enough

Brett Humphreys takes the guesswork out of determining how many simulations are needed to calculate value-at-risk

SAP makes play for risk territory

German software giant SAP is making a firm move into the risk management industry with the further development of its range of industry solutions. The Waldorf-based firm has already developed credit and market risk components for the financial services…

Reconciling ratings

How should internal credit ratings be calibrated to long-term default rates? This multibillion-dollar question is at the heart of the debate over Basel’s IRB approach. In thisarticle, Stefan Blochwitz and Stefan Hohl use simulations to demonstrate wide…

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