Faculty Advisor

Arthur Heinricher

Abstract

This thesis describes the Delta-Normal method of computing Value-at-Risk. The advantages and disadvantages of the Delta-Normal method compared to the Historical and Monte Carlo method of computing Value-at-Risk are discussed. The Delta-Normal method of computing Value-at-Risk is compared with the Historical Simulation method of Value-at-Risk using an implementation of portfolio consisting of ten stocks for 400 time intervals. Based on the normality of the distribution of the portfolio risk factors, Delta-Normal would be suitable if the distribution is normal and Historical Simulation method of calculating Value-at-Risk would be ideally suited if the distribution is non-normal.

Publisher

Worcester Polytechnic Institute

Degree Name

MS

Department

Mathematical Sciences

Project Type

Thesis

Date Accepted

2005-05-09

Accessibility

Unrestricted

Subjects

VaR, Delta-Normal Method, Portfolio management, Risk assessment, Random variables

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