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FinalApprovalCopy SUMMER 2002 THE JOURNAL OF RISK FINANCE 1
 

Summary: FinalApprovalCopy
SUMMER 2002 THE JOURNAL OF RISK FINANCE 1
I
n this article we present two new portfo-
lio-dependent methods for dimension
reduction in models for market risk, the
risk of a decrease in the value of a port-
folio due to adverse market movements. Banks
are required by regulators to use mathematical
models for value-at-risk to estimate their expo-
sure to market risk (see for example Stambaugh
[1996], Hull [2000], and J.P. Morgan/Reuters
[1996]). To cover potential losses, capital charges
are determined based on the result from these
simulations and on the quality of the banks'
models (see Basle Committee [1996] and Jack-
son et al. [1997]). In general, value-at-risk mod-
els have many dimensions, and therefore
algorithms for dimension reduction are impor-
tant to reduce simulation time.

  

Source: Albanese, Claudio - Department of Mathematics, King's College London

 

Collections: Mathematics