Value (VaR) Mapping a fixed-income portfolio (FRM T5-05)
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- čas přidán 31. 05. 2024
- In this video, we walk through an actual case study of Value at Risk (VaR) mapping, specifically as it is illustrated by Phillip Jorion in Chapter 11 of his book, Value at Risk. We will take a two-bond fixed income portfolio. It's going to have a value of 200 million, and we're going to look at VaR mapping under three different approaches. That mapping means that we'll take the value of the portfolio and we'll map it to one primitive risk factor or, in the more sophisticated case, five primitive risk factors. This will be a simplification exercise so that we can take in theory what is a complex portfolio and replace it, or map it to, a limited set of simple risk factors. Then we can shock or stress the risk factors as a means of estimating the risk of the portfolio.
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Your videos are so underrated. Comprehensive and understandable, great presentation
how do i do a stress testing on this? what variables should i compute?
thankyou for helping me
Great video as usual. A quick question came to my mind and which is somehow related to the problem I had at work. Let's say we have these risk factors and it covers one risk type interest rate, however such bond would be also subject to change of credit rating. Then if a credit rating drops the price will also drop even if interest rates stay the same. Is there any simple idea how to look at 2 types of risk in the same time? For example add something to principal and duration mapping which would also include potential drop in credit rating?
Thank you! Great question, but as it more advanced we prefer you post to our forum (where FRM candidates, charterholders, and other experts might assist). The location for this video is given in the description: www.bionicturtle.com/forum/threads/t5-05-value-var-mapping-a-fixed-income-portfolio.22889/
It sounds like your asking about decomposing Interest risk into multiple component's which would include spread risk among others... inflation risk, etc. Duration is only a limited metric in this regard.. you'd need to combine a more sophisticated model of spread risk vs short rate risk etc. The credit spread is the determinant of the term structure so i would argue its just a diff way of looking at the same problem which this video was meant to simplify at a very high level... if you want to quantify a potential hit to market value from downgrades, etc. I'd use a transition matrix. I hope i understood the question correctly. i think there are issues with your statement so i may have misunderstood
@@jaylev85 Thanks Jason I think you got it my question. Transition matrix would be great, but actually my company doesn't use any.
Duration is nice but unfortunately too limited. We currently use simplified approach so we try to identify primary risk for the trade and put it into on category. It's not true and from more complex products has a lot of problems, but it was used for reporting so... ;)
Good book
is it possible to get the excel that was shared in this video
i love you videos
Can you please provide the excel sheet for this video
Why did you skip Stress testing, benchmarking and mapping linear derivatives from this chapter 😨