C.08.Culp/Miller/Neves

Card Set Information

Author:
Exam9_2012
ID:
138210
Filename:
C.08.Culp/Miller/Neves
Updated:
2012-05-09 16:34:19
Tags:
VaR
Folders:

Description:
Value at Risk: Uses & Abuses
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  1. VaR
    • qualifies the exposure of a pf to risk
    • based on common risk horizon
    • uses consistent basis to quantify risk ($) -> compare
    • probability based: can derive loss at any degree of conf
  2. Limitations of VaR
    • should be used in conjunction w other methods
    • Proctor & Gamble (swap): VaR not designed for single trans; P&G more concerned w CF risk
    • Barings (rogue trader): mgt wasn't aware of trans
    • Orange County (bet on yield): aware of risk, seeking profit
    • Metallgesellschaft (LT price guarantee on gas & oil): trans were already hedged, problem was in CF
  3. Alternatives to VaR (similar)
    • CF risk: usefull when concerned on CF volatility
    • Shortfall risk: determines prob associated w given shortfall. Penalizes more big shortfalls than smaller ones.

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