RiskTech Forum

SAS®: A Point of View on Market Risk VaR

Posted: 2 April 2009  |  Source: SAS


An industry best practice for estimating the market risk of trading operations involves projecting profit-and-loss distributions of portfolios of financial instruments over short time horizons and then summarizing that information into single numbers, such as value at risk (VaR) and expected shortfall.

Easy to understand and conceptually straightforward, VaR has long been an industry standard for estimating market risk. The means by which it is calculated and used in practice to manage risk, however, present a number of modeling, data management and reporting challenges. This paper addresses ways in which SAS can help clients overcome these challenges to better measure and manage their market risk.

SAS offers a comprehensive platform for: automating the collection and preparation of market data; modeling risk factor evolution and instrument valuation to create profit/loss distributions; and accessing results at their most granular levels from interfaces that are already familiar to business users and quantitative resources.

By eliminating time-consuming manual and redundant data management tasks, market risk analysts have more time to spend on more productive tasks, such as exploring strategies for controlling and managing market risk. By providing a range of modeling approaches that vary in their level of sophistication, market risk analysts can uncover sensitivities of market risk estimates to model selection and parameter uncertainty. By comparing the results and time constraints of different modeling approaches, analysts can decide upon the most appropriate approaches for meeting their internal and external market risk estimation requirements. Finally, by providing accessibility to results through numerous interfaces, such as a Web browser and Microsoft Excel, all levels of business and quantitative users can explore (at any level of detail) the profit/loss distributions from which market risk estimates are derived.

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