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Methodology and Implementation of Value-at-Risk Measures in Emerging Fixed-Income Markets with Infre
Year Of Publication: 2005
Month Of Publication: December
Pages: 49
Download Count: 670
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Comment Num: 0
Language: EN
Who Can Read: Free
Date: 4-29-2006
Publisher: Administrator
This paper deals with the issue of calculating daily Value-at-Risk (VaR) measures within anenvironment of thin trading. Our approach focuses on fixed income portfolios with low frequency oftransactions in which the missing data problem makes VaR measures difficult to calculate.We propose and implement a methodology to calculate VaR measures with an incomplete panel of prices.The methodology is composed of three phases: Phase I, generates a complete panel of prices, using aterm-structure dynamic model of interest rates. Phase II, calculates portfolio VaR measures with severalalternative methods using the complete panel data generated in phase I. Phase III, shows how to back-testthe VaR measures obtained in phase II using the original incomplete panel of prices. We provide anempirical implementation of the methodology for the Chilean fixed income market. The proposedmethodology seems to provide reliable VaR measures for thinly traded markets addressing an importantissue for financial risk management in emerging markets.
Cortazar, Gonzalo Sign in to follow this author
Bernales, Alejandro Sign in to follow this author
Beuermann, Diether Sign in to follow this author
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