 A multi‐factor model for the risk management of portfoliosSandra Peterson and Richard C. Stapleton European Financial Management, 1999, vol. 5, issue 2, 223-239 Abstract: We propose a methodology for modelling the value at risk of a complex portfolio, based on an extension of the Ho, Stapleton and Subrahmanyam technique. We model the variance‐covariance structure of up to seven variables. These could represent four country indices and three exchange rates, for example. In addition, the effect of an arbitrary number of orthogonal factors can be analysed. The system is illustrated by estimating the value at risk for a portfolio of international stocks where the factors are stock market indices and exchange rates, a portfolio of international bonds where the factors are interest rates as well as exchange rates, and a portfolio of interest rate derivatives in different currencies. In this last case, we model a two‐factor term structure of interest rates in each of the currencies, valuing the derivatives at a future date using these term structures and the Black model. The model is applied for different fineness of the binomial density and computational accuracy and efficiency are estimated. G13, G15, G21 Date: 1999 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:eufman:v:5:y:1999:i:2:p:223-239 Ordering information: This journal article can be ordered from Access Statistics for this article European Financial Management is currently edited by John Doukas More articles in European Financial Management from European Financial Management Association Contact information at EDIRC. |
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