Mon, Oct 23, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Uncovering hidden insights from your VAR engine data

Friday, July 22, 2011

The following post was written by John Doran, Principal, SunGard Global Services’ Energy Practice. Value at Risk (VaR) is a popular metric used in risk management. While it gained popularity in the 1980s after the market crash of 1987, today it is being scrutinized after the market crash of 2008 due to extreme tail events that were not properly identified or mitigated.

Visibility into the behavior of the tail or the distribution of the simulated paths is generally not communicated to the stakeholders that use the metric. These simulated paths, while having low probability, have the potential to cause serious harm to trading operations. However, new visualization techniques are emerging that make it possible to increase transparency around risk, enhance process efficiencies, and boost revenue opportunity.

But first, let’s look at two main challenges. One of the primary problems with VaR is the fact that it is just a single number. Nothing about the behavior on the extreme tail or the distribution of the simulated paths is generally communicated to the stakeholders that use the metric.

The other major challenge with VaR is the fact that it is non-additive. VaR can be broken down into component levels, but one cannot add and subtract these values. However, detailed simulation trials from Monte Carlo can be added and subtracted from one a......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Regulatory - David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge, Carried interest tax: How much does it matter?, Odey sees 'terrifying' mix in MiFID, tapering, asset values, Hedge funds come together to share cost of MiFID and research, SEC turns up the heat on U.S. investment advisers, India's Sebi asks hedge funds to report investments in commodity derivatives[more]

    David Stockman: Trump tax reform overhaul is a pipe dream, stocks are heading for 40-70% plunge From CNBC.com: David Stockman is warning about the Trump administration's tax overhaul plan, Federal Reserve policy, saying they could play into a severe stock market sell-off. Stockman, the R

  2. North America - Puerto Rico rejects loan offers, accusing hedge funds of trying to profit off hurricanes[more]

    From TheIintercept.com: Puerto Rico has rejected a bondholder group's offer to issue the territory additional debt as a response to the devastation of Hurricane Maria. Officials with Puerto Rico's Fiscal Agency and Financial Advisory Authority said the offer was "not viable" and would harm the islan

  3. Investing - WPP targeted by short-selling American hedge fund, Sun co-founder sells secretive hedge fund on big chip trade[more]

    WPP targeted by short-selling American hedge fund From Cityam.com: An American hedge fund has mounted a bet against WPP, the world's largest advertising group, with a trade worth almost £90m. Lone Pine Capital has built a short position worth 0.51 per cent of the FTSE 100 company,

  4. Hedge funds up as industry adjusts to rising rates[more]

    Komfie Manalo, Opalesque Asia: Hedge funds have reshuffled their portfolio after nearly four weeks of rising rates as the Lyxor Hedge Fund Index was up +0.2% from 19 September to 26 (+1.1% YTD), fuelled by strong results of global macro funds, Lyxor Ass

  5. Manager Profile - How the world's hedge fund king used 'idea meritocracy' to become a billionaire[more]

    From Forbes.com: In 1982, Ray Dalio made what he calls the biggest mistake of his life. He made a bet that there would be an economic collapse stemming from a debt crisis. And he was wrong. He lost money. He lost his client's money. He had to let people go from his firm and borrow money from his dad