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 which make their results not entirely suitable to how the financial markets behave. Here are a […]

# Advanced Value at Risk Models

## VaR Calculation: The Assumptions of Standard Distribution

While calculating VaR using one of the statistical models, we make many assumptions, one of them is that the asset returns are i.i.d. normally distributed. This means that just like a coin toss, each return is an independent draw from the normal distribution. However, in reality, there is empirical evidence that the financial data is […]