A new Fourier transform algorithm for value-at-risk

Claudio Albanese, Ken Jackson and Petter Wiberg

Quantitative Finance, 2004, vol. 4, issue 3, 328-338

Abstract: In this paper, we introduce a new Fourier method for computing value-at-risk for a portfolio with derivatives and for return models with fat tails. The new method does not assume that the characteristic function for the return model is known explicitly. We define a class of admissible models for returns and present statistical evidence that supports our approach. We discuss the details of the algorithm. The paper concludes with two applications of value-at-risk. Both examples illustrate the effect that changes in the models for portfolio value and for risk factor returns have on the value-at-risk surface.

Date: 2004
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Citations: View citations in EconPapers (14)

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DOI: 10.1088/1469-7688/4/3/008

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