Abstract
For some intuition on market risk, let’s first take a look at a simple asset position. Assume throughout that our domestic currency is the dollar.
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We will later encounter an alternative method to artificially increase the number of price changes to work with, also without using a larger historical observation period.
- 2.
Note the different y-axis scale of histogram and normal density. The latter is normalized to a total area of 1, which lets us interpret partial areas as probabilities. We could normalize the histogram, too, by dividing the bar heights by the total bar area.
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Auer, M. (2018). Motivation. In: Hands-On Value-at-Risk and Expected Shortfall. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-319-72320-4_2
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DOI: https://doi.org/10.1007/978-3-319-72320-4_2
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Online ISBN: 978-3-319-72320-4
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