Hands-On Value-at-Risk and Expected Shortfall: A Practical Primer

174 Pages·2018·3.429 MB·English

by  Martin Auer (auth.)

Management for Professionals
Martin Auer
Hands-On
Value-at-Risk
and Expected
Shortfall
A Practical Primer
Management for Professionals
Moreinformationaboutthisseriesathttp://www.springer.com/series/10101
Martin Auer
Hands-On Value-at-Risk
and Expected Shortfall
A Practical Primer
123
MartinAuer
RaiffeisenBankInternational
Vienna,Austria
ISSN2192-8096 ISSN2192-810X (electronic)
ManagementforProfessionals
ISBN978-3-319-72319-8 ISBN978-3-319-72320-4 (eBook)
https://doi.org/10.1007/978-3-319-72320-4
LibraryofCongressControlNumber:2017961124
©SpringerInternationalPublishingAG2018
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Endorsements
A very useful guide to the theoretical and practical aspects of implementing and
operating a risk-monitoring system for a mid-size financial institution. It sets a
common body of knowledge to facilitate communication between risk managers,
computerandinvestmentspecialistsbybridgingtheirdiversebackgrounds.
GiovanniBarone-Adesi
Professor,UniversitádellaSvizzeraitaliana
Lugano,Switzerland
This unassumingand insightfulbookstarts from the basics and plainlybringsthe
readeruptospeedonboththeoryandimplementation.
ShaneHegarty
DirectorTradeFloorRiskManagement
Scotiabank
Visitthebook’swebsiteatwww.value-at-risk.com.
v
For
Nahuel,
Mirjam,
Yuna,
Yannik,
and Julian
Preface
Thisbooksetsouttodescribethesimplestmarketriskmodelthatisstillpractical.
Itoutlinesthemodel’sunderlyingmath,dailyoperation,andimplementation,while
strippingawayasmuchstatisticaloverheadasdeemedfit.Itdoesnotadvancesome
novel methods but attempts to pick and present those modeling approaches and
methodsthatmightconceivablydothejob.Wesetupandoperateahighlysimilar
modelin a mid-sizedAustrian bank;it performedvery well overall,rightthrough
someturbulentyearsinfinancialmarkets.Ofthecallswemade,wegotafewright.
Somewedidn’tatfirst, butwefixedthemandhopefullylearnedfromthem.They
allcametoshapethisaccount.
Iwrotethisbookforthefunofit.Butwhyshouldyoureadit?Ifyouarearecent
graduate on your first day in office or a time-starved manager ready to brush up
onyourmarketriskfundamentals,youhopefullygetaneasy-to-digestintroduction
to basic risk measures and their properties. If you are a programmer, you might
learnaboutthemathematicalunderpinningsofyourcode,makingyourexchanges
with the risk department just a bit smoother. If you are a quant, maybe you can
gaugethetypesofsupportstatisticsmostusefultodailyriskoperation.Ifyouarea
teamleaderallocatingmoneyandtime,youpossiblyfindwaystosteerthroughthe
technicaljargonandreinintheunderstandablecompulsionofyourteamtousethe
latesttechandthefanciestmath.Ifyouoperatethemodelonadailybasis,someof
theanalyticalsupportmethodsgivenheremighthelpyouunderstand,explain,and
defendthenumbers.Ifyou’reanyone,really,inthismotleycrew,Ihopethisbook
willeaseyourcommunicationwithcolleagues,clients,andcontrollers.
Aftermystudies,Iquicklyfiguredoutthatcollegeisfarmorefunthanwork,so
IappliedtoseveralprogramsatNewYorkuniversities.Bychance,Igotadmittedto
afinancialmathematicsone,whereinmyveryfirstlectureIdiscoveredthis“bond”
thing, an alien concept in my cash-strapped student life. That other people may
likewisegetexposedtomarketrisktopicsaftervaryingjourneyssetupthisbook’s
angle.Thisbookattimeswillstatetheobviousandthusoftenunmentioned—even
apparently trivial calls are easier to make if their trail is known to be trodden.
It will appear sloppy at times, as it proposes heuristics rooted in the nature of
imperfectreal-worlddata.Whileittriestoofferaconsistentnotation,itwillgladly
glossovermanytechnicaldetails. Severalopinionsin it youwillfind judgmental;
indicesmissinginasacrificetoreadability;andshortcutstakentosaveonpaperand
ix
x Preface
rumination.(AndthosearejusttheinfractionsIcommittedonpurpose.)Theviews
givenherearemineanddonotrepresentthoseofmycurrentorformeremployers.
I meantthis book,in the end,to be aboutsimplicity and aboutcommunication
betweenteammembersofwildlydifferingbackgrounds.Ihopereadingitisworth
abitofyourwhile.
Vienna,Austria MartinAuer
2018
Acknowledgments
I hadthe honorof beingpart of Raiffeisen Bank International’smarketrisk team,
and for this I am very grateful—thank you, Alexander Tsorlinis and Hannes
MösenbacherandMichaelGlaser.
A big thanks to the market risk team: Brigitte Ackermann, Harald Dür, Maria
Fizek,EdwinGlassner,Karl“Charly”Hackl,MarinKaraga,SaraLambing,Stefan
Mischer,OlgaMuster,EmilPersson,PeterProchazka,JureRadmann,andJohannes
Rhomberg—foryourdedicationandcounsel,yourcan-doattitude,andyourpatient
enduranceofmecursingatmyscreen.
It was a true privilege to encounter and work with many others throughout
the bank and over the years. I’d especially like to thank Nikolas Besemer, Boris
Breidenbach,ErnstGalavics, Harald Gaudera,MarkusGrabner,Elisabeth Gruber,
Roland Hafner, Helmut Hauser, Martin Hödl, Olivera Janic, Gerhard Keplinger,
Günther Kickinger, Stephan Kossmeier, Beatrix Lehner, Christian Mörtl, Sandra
Ober,SebastianPramreiter,MartinPredota,RainerPullirsch,MatthiasRabl,Wolf-
gangSakuler,StefanSchäfer,GerhardSchauer,StefanSigl-Worel,MariaSiopacha,
the missed Alexandru Tanase, Josef Teichmann, Peter Trappl, Gerhard Unger,
Alison Urbas, Julian Wergieluk, and Joachim Wieser. From an earlier stint I still
owethankstoGernotGebauer,AndreasHalwein,andHannesKavelar.
For invaluable help in revising various drafts of this text, I am especially
gratefultoAndreaChang,DanielaEscobar,EdwinGlassner,MartinHödl,Thomas
Tschurtschenthaler, Jan Vecer, and Jean Wang; for her valiant fight against the
semicolon,toJenniferGranic´.Thankyouall!
ManythanksfortheirgreatguidanceandsupporttothewholeteamatSpringer:
SilviaSchilgerius,RocioTorregrosa,AbinaySubramaniam,andUmaPeriasamy.
ThankstoPetra,forwatchingGNTMwithme;thankstoCommodoreformaking
the Amiga, the best computer there ever was; and thanks to Maria and Anton for
buyingmeone.
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