Application of Granularity Adjustment Approximation Method to Incremental Value-at-Risk in Concentrated Portfolios

Yu Takata ()
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Yu Takata: Sumitomo Mitsui Trust Research Institute

Economics Bulletin, 2018, vol. 38, issue 4, 2320-2330

Abstract: Most financial institutions use credit value-at-risk (VaR) produced by Monte-Carlo simulation or analytical approximation. While Monte-Carlo simulation needs large computational resources, and many approximation formulas have been proposed. We discuss the granularity adjustment approximation, and apply it to calculating incremental VaR. Through numerical experiments we show that we can obtain better approximation results by the granularity adjustment formula concerning incremental VaR.

Keywords: credit value-at-risk (VaR); granularity adjustment approximation; monte-Carlo simulation; Concentrated Portfolios (search for similar items in EconPapers)
JEL-codes: G1 (search for similar items in EconPapers)
Date: 2018-12-10
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