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Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Anastasiya Menshina
Simulation Methods for VaR for Options and Bonds
Business Informatics
(Bachelor’s programme)
2019
Value at Risk is now a standard metric for quantifying market risk. While its prediction for primitive assets is not complicated, there are difficulties when it comes to derivative and fixed income assets due. Their prices depend not only on the annual rates, but also on their time to maturity. In these cases, Monte Carlo simulation methods might be more helpful. This paper reviews existing VaR modelling methods (including duration-based VaR, delta-normal VaR, and VaR based on MC simulations), compares reviewed methods against each other and tests the adequacy of the results via the Kupiec test.

The research conducted by the offer helped produce a number of recommendations regarding the use of VaR modelling methods depending on assets’ characteristics. Some amendments to the existing VaR modelling standards have been proposed in order to minimize VaR manipulation. Simulation methods have proved to be more adequate when assessing VaR for fixed-income assets and financial derivatives.

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