Interpreting Value at Risk (VaR) forecasts

Value at Risk (VaR) forecasts have been increasingly accepted globally by both risk managers and regulators as a tool to identify and control exposure to financial market risk. However, modern portfolios are characterized by a constantly changing composition of security holdings that reflect portfol...

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Bibliographic Details
Published in:Economic systems 2008-06, Vol.32 (2), p.167-176
Main Authors: Gregory, Allan W., Reeves, Jonathan J.
Format: Article
Language:English
Subjects:
Economic theory
Financial engineering
Financial risk management
Financial risks
Portfolio management
Risk management
Securities regulations
Studies
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Summary:Value at Risk (VaR) forecasts have been increasingly accepted globally by both risk managers and regulators as a tool to identify and control exposure to financial market risk. However, modern portfolios are characterized by a constantly changing composition of security holdings that reflect portfolio managers’ strategies, expected prices, and net cash flows into the portfolio. As a result of these factors, portfolio returns are time-varying mixtures of distributions which are unlikely to be well approximated by conventional methods.
ISSN:0939-3625
1878-5433
DOI:10.1016/j.ecosys.2007.03.001