Loading....
Coupon Accepted Successfully!

 

Hybrid approach Steps

  • Estimating returns percentile directly as in HS

                  +

  • Exponential smoothing as in Risk Metrics
  • Step 1:
    • Denote by r (t – 1 ,t ) the realized returns from (t-1) to t
    • For the most recent k returns
    • Choose lamda based on weight requirements (L)
    • Assign a weight (1 – L) / (1 – L ^K)  for t = 1 , (1 – L) / (1 – L ^K) * L for t = 2 …
  • Step 2 :
    • Order returns in ascending order
  • Step 3 :
    • Keep accumulating the weights till you reach x% VaR
    • Linear interpolation is used to reach exactly x % of the distribution

Question: (Hybrid approach)

 





Test Your Skills Now!
Take a Quiz now
Reviewer Name