VAR

Question 1

SMCVaR

Answer 1

Write Inputs (Value, Return, Volatility)
Simulation Table
Simulated Portfolio at t=1
Simulation Output (Means, SD, Correlation)
Absolute VaR (V0, Quantile)

Question 2

Simulation Table

Answer 2

N(0,1)z1 and z2 =NORMSINV(RAND())
Correlated N(0,1) z3 =Correlationz1+SQRT(1-correlation^2)z2
ValueEXP(Return+Volatilityz1)
ValueEXP(Return+Volatilityz2)

Question 3

Simulation Output

Answer 3

Means =AVERAGE(Column)
STD =STDEV(Column)
Correlation =CORREL(x,y)

Question 4

Absolute VaR

Answer 4

V0 =USD1/(USD/NZD1)
Quantile =PERECNTILE(Column,1-Confidence)

Question 5

What is the Delta-Normal method of calculating VaR?

Answer 5

It assumes returns are normally distributed and linear. VaR is calculated using portfolio mean, standard deviation, and a z-score. It’s fast but limited to simple, linear portfolios.

Question 6

What is Structured Monte Carlo Simulation (SMC) for VaR?

Answer 6

It simulates thousands of future market scenarios (often using lognormal price models) to build an empirical distribution of portfolio values and estimate VaR. It handles nonlinear, complex portfolios.