Sat, Jul 26, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
New Managers July 2012

Peter Urbani' Statistics: Intra-Horizon Value at Risk

Intra-Horizon Value at Risk (VaR-I) - An idea whose time has come

During the recent financial crises, many financial institutions suffered losses much larger than their Value-at-Risk (VaR) models predicted and found that traditional end-of horizon risk measures are inadequate for managing longer-term risks.

There has been a considerable amount of literature on the measurement of financial risk; however, almost all the existing risk measures, either the popular Value-at-Risk (hereafter VaR) or expected shortfall (hereafter ES), mainly focus on quantifying the possible large losses at the end of the predetermined time horizon. This focus may be appropriate when dealing with short-term risks such as those mandated by the Basel Banking Committee.

But, this risk measurement methodology is inadequate for measuring longer-term risks, since it does not take into account the "intra-horizon risk," i.e. the possibility that the losses incurred before the end of the specified time horizon might trigger other problems such as position rebalancing, early liquidation, or margin calls.

So far there have been only three main papers studying the measurement of intra-horizon risk: Kritzman and Rich (2002), Boudoukh et al.(2004), and Bakshi and Panayotov (2010).

The standard VaR approach considers only terminal risk, completely ignoring the sample path of portfolio values. In reality interim risk may be critical in a mark-to-market environment. Sharp declines in value may generate margin calls and affect trading strategies. Boudoukh introduced the notion of MaxVaR, analogous to VaR in every way except it quantifies the probability of seeing a given loss on or before......................

To view our full article please login

This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.
New Managers
New Managers
New Managers

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. Events – AIMA Australian Hedge Fund Forum, Sept. 16, Sydney[more]

    AIMA Australia invite you to join us at our annual Hedge Fund Forum on Tuesday 16th September 2014 at the Sofitel Sydney Wentworth. The AIMA Australian Hedge Fund Forum is a non-profit hedge fund conference organised by the industry for the industry, featuring quality Australian and internation

  2. Opalesque Roundtable: Success in hedge fund marketing not linked to performance, but investor appetite[more]

    Komfie Manalo, Opalesque Asia: Success in marketing a fund is not linked to the performance, but to investor appetite, to the way you can market the fund, and to how much time you can spend to raise assets, said Antoine Rolland, the CEO of incubator and seeding firm

  3. Opalesque Exclusive: Loeb, Grantham cite growing economic concerns in letters[more]

    Bailey McCann, Opalesque New York: Hedge fund manager Daniel Loeb, head of Third Point, and Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co. have both released their quarterly investor letters today. While news is positive on some fronts, and both men see pockets of opportunity, they also h

  4. Investing – Hedge funds expect Netflix earnings to catapult forward, Third Point's Loeb takes stakes in Fibra Uno, YPF, Royal DSM, Lake Capital in talks to back Engine Group[more]

    Hedge funds expect Netflix earnings to catapult forward From Investing.com: Netflix has made major strides forward in 2014 despite ongoing battles with the FCC and cable companies over the issue of net neutrality. The FCC has now received over 500,000 comments from the public on its pend

  5. Opalesque Roundtable: European family offices struggle to retain their investments in offshore hedge funds[more]

    Komfie Manalo, Opalesque Asia: The European Union’s Alternative Investment Fund Managers Directive (AIFMD) will constrain investment opportunities amidst concern a number of U.S. fund managers will stop marketing their products in the European Union under the new rule, said Valentin Bohländer fro