Topic: PRM Exam

Problems with the VaR Models

We have learned about three important Value-at-Risk models that are most commonly used by banks and financial institutions, namely, analytical VaR, historical simulation VaR, and Monte Carlo simulation VaR. None of these models are perfect and have certain assumptions...

Economic Capital Calculation: Approaches

We know that economic capital is the amount of capital a bank needs to maintain to absorb the impact of unexpected losses during a time horizon at a certain level of confidence. The approaches to calculating economic capital can be broadly classified into top-down and...

VaR Mapping for Options Positions

In the previous article we learned about how to map various complex positions such as coupon paying bonds, FRAs, and swaps. All these complex positions had linear payoffs and were fairly straightforward to map. However, there are other positions such as options where...

Stock Market Distribution

There is no doubt that the way our stock markets and other financial markets behave is largely governed by the statistical concepts such as the Central Limit Theorem, or the law of large numbers. According to the Central Limit Theorem, the mean of a large number of...

Backtesting Value at Risk (VaR)

In the previous articles we learned a lot about how VaR is calculated using various methodologies. We also learned about stress testing our portfolios. But can we really rely on these VaR methods and accept the results they throw at us? In other words, how accurate...

Mapping Complex Financial Positions

We have now learned about how VaR can be calculated for primitive positions including spot FX positions, equity positions, zero-coupon bonds, and futures/forward positions. We will now look at how complex positions can be decomposed into these primitive instruments...

Page 4 of 21« First...23456...1020...Last »