Estimating market risk measures, Slides of Credit and Risk Management

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ESTIMATING MARKET

RISK MEASURES

DATA

• In^ financial terms, overall data corresponds to balance sheet, off-balance sheet and profit & loss reporting and can be drilled down further.
• The return data obtained through P&L is important indicator of profit /losses which is further used for estimating risk (e.g. VAR based)
• The returns can be arithmetic or geometrical
• Current P/L : Asset or portfolio value at time t + Received payment or net payment at value t - Asset or portfolio value at time t-
• Present value of P/L = [Get present value of^ Asset + Payment at time t (by discounting )] - asset or portfolio value at time t-
• Future value of P/L = (Present value of Asset + Payment at time t ) - asset or portfolio value at t-

• Take loss return { -5,-4,2,3,-1,5,7,8}
• Order the numeric scale highest to lowest loss

• Say, significance given 2%: Based on this count same (take 2nd

loss) from highest

• So VAR = -