Risk Analysis Flashcards
What is the main idea of risk analysis?
After risks have been measured, they should be analyzed further.
The risk analysis has the following two objectives.
1) Clarify the relationship between the effect (risk) and its causes (risk factor) for better understanding this relationship
2) Classify risks in order to separate relevant or major risks from irrelevant or minor risks.
What is the idea of sensitivity analysis?
The idea of sensitivity analysis is to understand how sensitive a particular risk reacts to a change in one of those risk factors.
e.g. How would the VaR Delivery Hero react to a 20% fall in volatility?
It helps to separate relevant risk factors - those with a significant influence - from irrelevant ones - those with an insignificant influence.
What is the Problem of the sensitivity analysis?
Its difficult to identify if a given change in a risk factor is reasonable or not
Also a sensitivity analysis is limited to changes in one risk factor. Thus if there are more than one risk factors at the same time we conduct a scenario analysis.
What is the idea of the marginal VaR?
It measures a particular sensitivity in a portfolio context, namely how sensitive the portfolio VaR is to changes in the size of an asset position.
If we increase/reduce the asset position by 1€ the VaR of the portfolio will increase/fall by …
What is the Beta in the formula of Marginal VaR standing for?
Shows the interdependency between the Asset Position and the portfolio.
