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Worse fluctuation method for fast Value-at-Risk estimates

Jean-Philippe Bouchaud·Marc Potters
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Abstract

We show how one can actually take advantage of the strongly non-Gaussian nature of the fluctuations of financial assets to simplify the calculation of the Value-at-Risk of complex non linear portfolios. The resulting equations are not hard to solve numerically, and should allow fast VaR and $Δ$VaR estimates of large portfolios, where {\it by construction} the influence of rare events is taken into account reliably. Our method can be seen as a correctly probabilized `scenario' calculation (or `stress-testing').

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Jean-Philippe Bouchaud, Marc Potters. 1999-09-16. Worse fluctuation method for fast Value-at-Risk estimates. https://arxiv.org/abs/cond-mat/9909245

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