Approximating Value at Risk in Conditional Gaussian Models

  • Stefan R. Jaschke
  • Yuze Jiang


Financial institutions are facing the important task of estimating and controlling their exposure to market risk, which is caused by changes in prices of equities, commodities, exchange rates and interest rates. A new chapter of risk management was opened when the Basel Committee on Banking Supervision proposed that banks may use internal models for estimating their market risk (Basel Committee on Banking Supervision, 1995). Its implementation into national laws around 1998 allowed banks to not only compete in the innovation of financial products but also in the innovation of risk management methodology. Measurement of market risk has focused on a metric called Value at Risk (VaR). VaR quantifies the maximal amount that may be lost in a portfolio over a given period of time, at a certain confidence level. Statistically speaking, the VaR of a portfolio is the quantile of the distribution of that portfolio’s loss over a specified time interval, at a given probability level.


Truncation Error Importance Sampling Implied Volatility Market Risk Latin Hypercube Sampling 
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© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Stefan R. Jaschke
  • Yuze Jiang

There are no affiliations available

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