PART ONE: INTRODUCTION.
What are Value-at-Risk and Risk Budgeting?
Value-at-Risk of a Simple Equity Portfolio.
PART TWO: TECHNIQUES OF VALUE-AT-RISK AND STRESS TESTING.
The Delta-Normal Method.
Historical Simulation.
The Delta-Normal Method for a Fixed Income Portfolio.
Monte Carlo Simulation.
Using Factor Models to Compute the VaR of Equity Portfolios.
Using Principal Components to Compute the VaR of Fixed-Income
Portfolios.
Stress Testing.
PART THREE: RISK DECOMPOSITION AND RISK BUDGETING.
Decomposing Risk.
A "Long-Short" Hedge Fund Manager.
Aggregating and Decomposing the Risks of Large Portfolios.
Risk Budgeting and the Choice of Active Managers.
PART FOUR: REFINEMENTS OF THE BASIC METHODS.
Delta-Gamma Approaches.
Variants of the Monte Carlo Approach.
Extreme Value Theory and VaR.
PAART FIVE: LIMITATIONS OF VALUE-AT-RISK.
VaR Is Only an Estimate.
Gaming the VaR.
Coherent Risk Measures.
PART SIX: CONCLUSION.
A Few Issues in Risk Budgeting.
References.
Index.
NEIL D. PEARSON, PhD, is an Associate Professor of Finance at the University of Illinois at Urbana-Champaign. His research includes work on the development, estimation, and evaluation of models for pricing and hedging various derivatives and other financial instruments. Dr. Pearson has published papers in a number of academic journals, and is an Associate Editor of both the Journal of Financial Economics and the Journal of Financial and Quantitative Analysis. He has consulted for a number of U.S. and international banks, working on term structure models, the evaluation of derivatives pricing models, and issues that arise in the computation of Value-at-Risk measures. He received his PhD from the Massachusetts Institute of Technology.
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