Comments on: Intro to Quant Finance: Value at Risk (VaR)

By: figifigi23

figifigi23 — Fri, 05 Feb 2010 21:52:11 +0000

Nice brow…

By: figifigi23

figifigi23 — Fri, 05 Feb 2010 21:48:12 +0000

cool brow…

By: figifigi23

figifigi23 — Fri, 05 Feb 2010 20:57:23 +0000

Hello mister David..
I have difficult to differ the delta normal approach from the historical distribution..
The pracsis you are performing in this video is much alike the historical distribution??

Mahyar, Denmark.

By: bionicturtledotcom

bionicturtledotcom — Fri, 05 Feb 2010 20:17:36 +0000

Hi Mahyar: History informs params but that’s all: it gives us average & volatility. But then I don’t use history, i.e., for normal (parameteric) distribution. I use only the smooth (but unrealistic) curve. A HISTORICAL SIM has NO params. For historical sim, you only need to SORT the historical return and look down the list to 95th-99th %ile, etc. You have a point, under most VaR approaches, historical series at least implicitly informs going-forward model. Thanks for viewing!

By: figifigi23

figifigi23 — Fri, 05 Feb 2010 19:35:47 +0000

All righty… Now my mind is settled..
I have burned the midnightoil here in Denmark whit thiese sort of issues the last 2 weeks.. And its great 2 watch someone else practise thiese issues, so I can see it from anohter proff.s point off wiev… So you just keep doing the fine job…
Salut from DK….

By: Arteaisgoodman

Arteaisgoodman — Fri, 05 Feb 2010 18:44:18 +0000

I liked it. Very informative staff.

By: earth1ing

earth1ing — Fri, 05 Feb 2010 18:14:52 +0000

David,

Thanks for posting these videos. I’d like to point out one oversight in this illustration. When the mean is non-zero (here, it is -0.71%), you must take it into account. So in your spreadsheet, C18 should =C14+C16*C17.

Of course, the mean is commonly approximately zero and can be ignored, but in this example it’s worth including.

Thanks again for posting these videos, they are useful!

Aviad

By: bionicturtledotcom

bionicturtledotcom — Fri, 05 Feb 2010 17:18:02 +0000

Thanks Aviad, I appreciate that.

And I agree, I am showing the so-called absolute VaR without reference to the mean; which is sort of okay for short trading (daily or less) periods. But yours (so-called relative VaR) is just better as it is the general case and treats VaR as the unexpected loss. Thanks for making this point!

David

By: mport365

mport365 — Fri, 05 Feb 2010 17:13:49 +0000

I have question. How did you draw that normal distribution graph in the excel?

By: arihant11

arihant11 — Fri, 05 Feb 2010 16:43:46 +0000

Statistical functions are available in excel.