Faculty Advisor

Bogdan Vernescu

Faculty Advisor

Marcel Y. Blais

Abstract

This report is for MA575: Market and Credit Risk Models and Management, given by Professor Marcel Blais. In this project, three different methods for estimating Value at Risk (VaR) and Expected Shortfall (ES) are used, examined, and compared to gain insightful information about the strength and weakness of each method. In the first part of this project, a portfolio of underlying assets and vanilla options were formed in an Interactive Broker paper trading account. Value at Risk was calculated and updated weekly to measure the risk of the entire portfolio. In the second part of this project, Value at Risk was calculated using semi-parametric model. Then the weekly losses of the stock portfolio and the daily losses of the entire portfolio were both fitted into ARMA(1,1)-GARCH(1,1), and the estimated parameters were used to find their conditional value at risks (CVaR) and the conditional expected shortfalls (CES).

Publisher

Worcester Polytechnic Institute

Degree Name

MS

Department

Mathematical Sciences

Project Type

Thesis

Date Accepted

2012-05-02

Accessibility

Unrestricted

Subjects

Portfolio Optimization, Value at Risk, Expected Shortfall, ARMA-GARCH Model, Risk Reduction

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