Simulation Methods for VaR for Options and Bonds

Student: Menshina Anastasiya

Educational Programme: Business Informatics (Bachelor)

Year of Graduation: 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.

Student Theses at HSE must be completed in accordance with the University Rules and regulations specified by each educational programme.

Summaries of all theses must be published and made freely available on the HSE website.

The full text of a thesis can be published in open access on the HSE website only if the authoring student (copyright holder) agrees, or, if the thesis was written by a team of students, if all the co-authors (copyright holders) agree. After a thesis is published on the HSE website, it obtains the status of an online publication.

Student theses are objects of copyright and their use is subject to limitations in accordance with the Russian Federation’s law on intellectual property.

In the event that a thesis is quoted or otherwise used, reference to the author’s name and the source of quotation is required.

Search all student theses