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Pathwise grid valuation of fixed-income portfolios with applications to risk management

Zamani, S ; Sharif University of Technology | 2022

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  1. Type of Document: Article
  2. DOI: 10.1016/j.heliyon.2022.e09880
  3. Publisher: Elsevier Ltd , 2022
  4. Abstract:
  5. Numerical calculation of Value-at-Risk (VaR) for large-scale portfolios poses great challenges to financial institutions. The problem is even more daunting for large fixed-income portfolios as their underlying instruments have exposure to higher dimensions of risk factors. This article provides an efficient algorithm for calculating VaR using a historical grid-based approach with volatility updating and shows its efficiency in computational cost and accuracy. Our VaR computation algorithm is flexible and simple, while one can easily extend it to cover other nonlinear portfolios such as derivative portfolios on equities and FX securities. © 2022
  6. Keywords:
  7. Financial risk management ; Fixed-income portfolio ; Profit and Loss (PnL) calculation ; Scenario analysis ; Value-at-Risk (VaR)
  8. Source: Heliyon ; Volume 8, Issue 7 , 2022 ; 24058440 (ISSN)
  9. URL: https://www.sciencedirect.com/science/article/pii/S2405844022011689