VRM 2. Calculating and Applying VaR

Learning Objectives

1) Explain and give examples of linear and non-linear portfolios.

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

3) Describe the delta-normal approach and use it to calculate VaR for non-linear derivatives.

4) Describe and calculate VaR for linear derivatives.

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

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

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

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