Comments on: How has VaR changed over time? http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: ccf http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5979 Wed, 26 Aug 2009 16:08:56 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5979 In a similar vein, here’s something I wrote at the end of 2008 based on the DJIA over the last 100 or so years.

http://www.riskmetrics.com/publications/ research_monthly/20081100

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By: sixx http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5236 Mon, 10 Aug 2009 08:50:56 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5236 You can check daily VaR numbers for major equity indices here:

http://www.finanalytica.com/en/page/100/ VaR_daily_statistics

Besides you can compare fat-tailed vs. normal VaR.

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By: Phorgy Phynance http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5159 Fri, 07 Aug 2009 16:47:00 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5159 FYI. I added another 10-year chart that uses a weighting scheme that I actually use in my work.

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By: jck http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5133 Fri, 07 Aug 2009 12:41:54 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5133 Remember that for GS, there is also a move from SEC approved models to Fed approved models as a result of them becoming a BHC that will result in higher VaR readings, ceteris paribus.

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By: a http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5126 Fri, 07 Aug 2009 07:54:43 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5126 1/ The investment bank sides of most banks are delta hedged in their equity positions. So the formulas I’m seeing are far too simplistic.

2/ Suppose the banking universe is closed (it’s not, but suppose it is), so there are some banks which are over-all buyers of volatility/correlation and others which are sellers. (They are delta hedged but not hedged in terms of gamma, vega, etc.) When there is increased volatility/correlation in the market, the Var of the buyers only goes down a little, because there Var gets taken from the calm days, and there’s always some calm days in the historical sample. The Var of the sellers, however, explodes. So over-all in the banking sector the Var explodes.

3/ The banking universe is not closed and as a rule most banks are sellers of catastrophe. If the markets go down a little, they make money; but if they go down a lot, they lose a lot. When catastrophe is not in the historical sample, the Var stays reasonable. But when catastrophe makes it into the historical sample, it gets reflected in the Var, and Var explodes.

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By: M http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5118 Fri, 07 Aug 2009 02:48:52 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5118 Finally at least you are trying to understand VAR. However, you quickly allow yourself to still jump to the conclusion you just seem to want to take, no matter what. That VAR shows Goldman increased their bets.
However, VAR for Goldman will be more than just S&P, more than just equities. You need to take interest rates, currency rates, credit rates, basically the whole thing into account. They will show different volatility and different extremes.

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By: nick gogerty http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5116 Fri, 07 Aug 2009 01:22:41 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5116 like the clever accountant or lawyer would say. What do you want it to be. VaR explained here: http://nickgogerty.typepad.com/designing _better_futures/2009/06/var-explained.ht ml

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By: Phorgy Phynance http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5100 Thu, 06 Aug 2009 20:03:01 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5100 Hi Felix,

I just noticed your “Update” so I added an “Update” on my post to address your “Update”. Meta meta…

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By: mcnet http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5097 Thu, 06 Aug 2009 19:01:06 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5097 See Goldman’s discussion of Var in the Market Risk discussion section of the 10 Q around p 121-125. They use weighted historical simulation which presumably would result in risk reflecting more recent volatlity. But this is a methodology that is inconsistent with BIS guidelines and other bank reg requirements so any comparisons are fraught with peril.

In addition they disclose those positions that are NOT included in the VAR calculaton,(p124) which I assume their peers would include, which are sizeable.

The total reported var is 221 million. The risk-10%senstivity (whatever that means)is 1.2 BILLION.
If this sensitivity number can be interpreted as a var equivalent, then including it in any var analysis is a must.

Either way, VAR is of very limited analytical value in GS case since it is so opaquely calculated and disclosed, does not impact its capital requirements (as a result of the exemption), as it does for its peers, and VAR does not reflect intraday risk (, where I believe most of GS exceptional profits originate).

If the excluded market risk is the source of its FI profits, then those numbers should be disclosed and the exception should be revoked immediatedly to require GS to include them in the VAR.

At a minimum GS should be required to disclose their sanctioned VAR vs the VAR they would report if they were not exempt. I’m sure they calculate and monitor it. Its kind of outrageous the SEC or the FED doesn’t require it as a condition of the exemption.

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By: Mike Nute http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/comment-page-1/#comment-5090 Thu, 06 Aug 2009 17:48:08 +0000 http://blogs.reuters.com/felix-salmon/2009/08/06/how-has-var-changed-over-time/#comment-5090 What I would like to see is if there is some way to chart the VaR over time using the implied volatility in the options at the same point in time rather than a trailing actual volatility in the stock prices.

This would be computationally intensive for a single stock and obviously many times moreso for the S&P index, but it is possible. If I had daily call option data (strike price, strike date, and price would be sufficient) for all the stocks, I think I could do it.

What it would tell you is the market’s perception of actual volatility (and thus VaR) for the index. Of course, if the banks are using “dumb” volatility metrics like a trailing average, which it appears they are, then maybe that’s not of much interest. I’d certainly bet that the banks have internal models that are much better than this.

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