Ch.5 Implementing Risk Forecast

Question 1

As a rule of thumb, what is the minimum sample size when estimating VaR with historical data?

Answer 1

3 divided by percentile.

Question 2

What is the analytical VaR for one asset? How does it change if we assume the mean return is non-zero?

Answer 2

For multiple assets, we use st.d of the porfolio and its value. If we assume that the mean is non-zero, simply substract the mean.

Question 3

What is the formula for forecasted VaR using student-t distribution?

Answer 3

Question 4

Say we wish to calculate the VaR for more than 1 day. How can we modify the formula assuming IID returns?

Answer 4

Question 5

What is one measure of Model risk? What is its formula?

Answer 5

The Risk Ratio

Question 6

If I were to ask for a model that reacts quickly to news, which two
would you choose?

Answer 6

1. GARCH
2. EWMA

Question 7

Which three risk models are easiest to compute

Answer 7

1. Historical Simulation
2. Moving Average
3. EWMA

Question 8

Which two models work best in small samples?

Answer 8

1. EWMA
2. MA

Question 9

If I were to ask for a volatility model which itself gives the less volatile estimate, which one would you choose?

Answer 9

Historical Simulation

Question 10

Which two models better estimate the tails of volatility distribution?

Answer 10

1. EVT
2. tGARCH

Question 11

What is the formula for one day ahead VaR with mean?

Answer 11