Presentation on theme: "Portfolio VaR Jorion, chapter 7. Goals Portfolio VaR definitions Portfolio VaR global equity example –Delta normal –Historical –Bootstrap Incremental."— Presentation transcript:
Extremes VaR on portfolio is max for correlation of 1 Portfolio VaR is the sum of VaR’s
Component Issues Sensitivity to portfolio changes –Analytic tools (in Jorion) Bootstrap and monte-carlo methods –Try sweeping through different portfolios –Applications – US to Global change bsensgport.m – US to Japan change bsensgport2.m
Adding Options to Equity Portfolios Problem: –50/50 US/UK equity portfolio –Cover the US position only by purchasing a put Do this at the money first 20 day (1 month European option) –First, what does the eventual portfolio distribution look like?
Part 1 What does an option do to the distribution? optdist.m
Part 2 Evaluating option purchases – usoptchoice.m
Summary Portfolio choice adds different dimensions –Covariances –Joint bootstrapping Often critical May be most important part of modeling risk factors