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Application of Granularity Adjustment Approximation Method to Incremental Value-at-Risk in Concentrated Portfolios

Author

Listed:
  • Yu Takata

    (Sumitomo Mitsui Trust Research Institute)

Abstract

Most financial institutions use credit value-at-risk (VaR) produced by Monte-Carlo simulation or analytical approximation. While Monte-Carlo simulation needs large computational resources, and many approximation formulas have been proposed. We discuss the granularity adjustment approximation, and apply it to calculating incremental VaR. Through numerical experiments we show that we can obtain better approximation results by the granularity adjustment formula concerning incremental VaR.

Suggested Citation

  • Yu Takata, 2018. "Application of Granularity Adjustment Approximation Method to Incremental Value-at-Risk in Concentrated Portfolios," Economics Bulletin, AccessEcon, vol. 38(4), pages 2320-2330.
    • Handle: RePEc:ebl:ecbull:eb-18-00874
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    References listed on IDEAS

    as
    1. Winfried G. Hallerbach, 1999. "Decomposing Portfolio Value-at-Risk: A General Analysis," Tinbergen Institute Discussion Papers 99-034/2, Tinbergen Institute.
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    3. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
    4. Susanne Emmer & Dirk Tasche, 2003. "Calculating credit risk capital charges with the one-factor model," Papers cond-mat/0302402, arXiv.org, revised Jan 2005.
    5. Ieda, Akira & Marumo, Kohei & Yoshiba, Toshinao, 2000. "A Simplified Method for Calculating the Credit Risk of Lending Portfolios," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 18(2), pages 49-82, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    credit value-at-risk (VaR); granularity adjustment approximation; monte-Carlo simulation; Concentrated Portfolios;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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