Quant Research · Research
Risk Models: VaR & Stress Tests
How firms measure downside: parametric, historical and Monte Carlo VaR, the square-root-of-time rule, expected shortfall, backtesting, stress tests and scenarios, and why VaR failed in 1998 and 2008.
Step 1 of 5 · Overview30 min read ·
Key idea
Prereqs: Distributions & fat tails; Factor models. Next: Backtesting pitfalls. Sources: J.P. Morgan RiskMetrics (1994); Basel Committee FRTB (expected shortfall at 97.5%); Philippe Jorion, *Value at Risk*.Next: 1. Definition