A multi-period VaR model being able to incorporate credit risk.
Date Issued
2005
Date
2005
Author(s)
Huang, Chung-Yu
DOI
zh-TW
Abstract
Risk management has experienced a revolution recently. It started by the new method for measuring financial market risk--Value at Risk (VaR) that was developed in response to the financial disasters of the early 1990s. The original VaR method focuses only on measuring market risk and cannot trace the variation of VaR in the future. In order to improve it, this study builds a multi-period VaR model being able to incorporate credit risk. Knowing default probabilities, recovery rates, and default correlation for all the assets in a bond portfolio, we could use expected recovery rate to transform risky cash flows into default-free equivalent cash flows. Moreover, RiskMetrics and Aggregated Bond Method could be employed to obtain the portfolio VaR. After comparing results from these two methods, we conclude that Aggregated Bond Method can better catch the risk better than RiskMetrics.
Subjects
風險值
債券投資組合
市場風險
信用風險
Value at Risk
Bond portfolio
Market risk
Credit risk
Type
thesis
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