THEMATIC PROGRAMS

Numerical and Computational Challenges in Science and Engineering Program

Petter Wiberg, Computer Science Department, University of Toronto

LECTURE

January 15th, 2002 11:00am

An introduction to value-at-risk simulation: background, modeling, and algorithms

The value-at-risk is the maximum loss that a portfolio might suffer over a given holding period with a certain confidence level. In recent years, value-at-risk has become a benchmark for measuring financial risk used by both practitioners and regulators. In this seminar, we discuss value-at-risk from a modeling and simulation perspective. We present a new efficient algorithm for computing value-at-risk and the value-at-risk gradient for portfolios of derivative securities. In particular, we discuss dimensional reduction of the model, perturbation theory, and applications to hedging of derivatives portfolios.

 

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