VaR without Correlations for Portfolios of Derivative Securities

Giovanni Barone Adesi, Kostas Giannopoulos and Les Vosper

Chapter 2 in Simulating Security Returns: A Filtered Historical Simulation Approach, 2014, pp 9-29 from Palgrave Macmillan

Abstract: Abstract We propose filtering historical simulation by GARCH processes to model the future distribution of assets and swap values. The price changes of options are computed by full re-evaluation on the changing prices of underlying assets. Our methodology implicitly takes into account the correlations of assets without restricting their values over time or computing them explicitly. VaR values for portfolios of derivative securities are obtained without linearizing them. Historical simulation assigns equal probability to past returns, neglecting current market conditions. Our methodology is a refinement of historical simulation.

Keywords: Interest Rate; Asset Price; Call Option; Future Contract; Historical Simulation (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-46555-9_2

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DOI: 10.1057/9781137465559_2

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