RISK MANAGEMENT UNDER A FACTOR STOCHASTIC VOLATILITY MODEL
Marcos Escobar () and
Pablo Olivares ()
Additional contact information Marcos Escobar: Department of Mathematics, Ryerson University, Canada
Pablo Olivares: Department of Mathematics, Ryerson University, Canada
In this paper, we study risk measures and portfolio problems based on a Stochastic Volatility Factor Model (SVFM). We analyze the sensitivity of Value at Risk (VaR) and Expected Shortfall (ES) to the changes in the parameters of the model. We compare the positions of a linear portfolio under assets following a SVFM, a Black–Scholes Model and a model with constant dependence structure. We consider an application to a portfolio of three selected Asian funds.