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VAR - Historical Simulation & Other Issues

Historical simulation is one of the three most common approaches used to calculate value at risk. The use of real historical data, coupled with its ease of implementation, has made historical simulation a very popular approach to estimating VAR.

 

Apart from historical simulation, this course also examines how techniques such as stress testing, backtesting and extreme value theory are used by risk managers.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Outline the historical simulation approach to calculating value at risk (VAR)

    Describe the advantages and disadvantages of historical simulation

    Explain the Basel Committee's standards for VAR models and the backtesting of these models

    Understand how and why stress testing is used in risk management

    Describe the basics of extreme value theory

  • COURSE OUTLINE

    Topic 1: Calculating VAR Using the Historical Simulation Approach

    What is the Historical Simulation Approach?

    Calculating VAR Using the Historical Simulation Approach

    Topic 2: Appraisal of the Historical Simulation Approach

    Advantages of the Historical Approach

    Drawbacks of the Historical Simulation Approach

    Historical Simulation Vs. Other Approaches

    Topic 3: Basel Committee Standards for VAR Models

    The Market Risk Amendment

    Basel Committee Standards

    Backtesting

    Basel Committee’s Approach to Backtesting

    Topic 4: Stress Testing

    What is Stress Testing?

    Why Stress Test?

    Types of Stress Test

    Conducting Stress Tests

    Topic 5: Extreme Value Theory

    What is EVT?

    How does EVT Work?

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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