VRM 2. Value at Risk (VaR): LOs

a) Explain and give examples of linear and non-linear derivatives.

b) Describe and calculate VaR for linear derivatives.

c) Describe and explain the historical simulation approach for computing VaR and ES.

d) Describe the delta-normal approach for calculating VaR for non-linear derivatives.

e) Describe the limitations of the delta-normal method.

f) Explain the structured Monte Carlo method for computing VaR and identify its strengths and weaknesses.

g) Describe the implications of correlation breakdown for scenario analysis.

h) Describe worst-case scenario (WCS) analysis and compare WCS to VaR.