C.08.Culp/Miller/Neves

  1. VaR
    • qualifies the exposure of a pf to risk
    • based on common risk horizon
    • uses consistent basis to quantify risk ($) -> compare
    • probability based: can derive loss at any degree of conf
  2. Limitations of VaR
    • should be used in conjunction w other methods
    • Proctor & Gamble (swap): VaR not designed for single trans; P&G more concerned w CF risk
    • Barings (rogue trader): mgt wasn't aware of trans
    • Orange County (bet on yield): aware of risk, seeking profit
    • Metallgesellschaft (LT price guarantee on gas & oil): trans were already hedged, problem was in CF
  3. Alternatives to VaR (similar)
    • CF risk: usefull when concerned on CF volatility
    • Shortfall risk: determines prob associated w given shortfall. Penalizes more big shortfalls than smaller ones.
Author
Exam9_2012
ID
138210
Card Set
C.08.Culp/Miller/Neves
Description
Value at Risk: Uses & Abuses
Updated