Carol Alexander – Market Risk Analysis Vol. IV .Value-At-Risk Models
Market Risk Analysis is a series of four volumes:
Volume I: Quantitative Methods in Finance
Volume II: Practical Financial Econometrics
Volume III: Pricing, Hedging and Trading Financial Instruments
Volume IV: Value at Risk Models.

Although the four volumes are very much interlinked, each containing numerous cross-references to other volumes, they are written as self-contained texts.

Volume I covers the essential mathematical and financial background for subsequent volumes. There are six comprehensive chapters covering all the calculus, linear algebra, probability and statistics, numerical methods and portfolio mathematics that are necessary for market risk analysis. It is a complete and pedagogical introduction to quantitative methods applied to finance.

Volume II provides a detailed understanding of financial econometrics, with a unique focus on applications to asset pricing, fund management and market risk analysis. It covers equity factor models, including a detailed analysis of the Barra model and tracking error, principal component analysis, volatility and correlation, GARCH, cointegration, copulas, Markov switching, quantile regression, discrete choice models, non-linear regression, forecasting and model evaluation.

Volume III has five extensive chapters on the pricing, hedging and trading of bonds and swaps, futures and forwards, options and volatility, and detailed descriptions of mapping portfolios of these financial instruments to their risk factors. There are numerous examples, all coded in interactive Excel spreadsheets, including many pricing formulae for exotic options but excluding the calibration of stochastic volatility models, for which Matlab code is provided.

Volume IV builds on the three previous volumes to provide a comprehensive and detailed treatment of market VaR models. The exposition starts at an elementary level but, as in all the other volumes, the pedagogical approach accompanied by numerous interactive Excel spreadsheets allows readers to experience the application of parametric linear, historical simulation and Monte Carlo VaR models to increasingly complex portfolios. Starting with simple positions, readers are soon applying risk models to large international securities portfolios, commodity futures, path dependent options and much else. This rigorous treatment includes many new results and applications to regulatory and economic capital allocation, measurement of VaR model risk and stress testing.

Each volume is accompanied by a CD-ROM which features numerous interactive Excel spreadsheets that illustrate the vast majority of the problems and case studies in these texts. For further information see the accompanying CD-ROM
From the Back Cover
Written by leading market risk academic, Professor Carol Alexander, Value-at-Risk Models forms part four of the Market Risk Analysis four volume set. Building on the three previous volumes this book provides by far the most comprehensive, rigorous and detailed treatment of market VaR models. It rests on the basic knowledge of financial mathematics and statistics gained from Volume I, of factor models, principal component analysis, statistical models of volatility and correlation and copulas from Volume II and, from Volume III, knowledge of pricing and hedging financial instruments and of mapping portfolios of similar instruments to risk factors. A unifying characteristic of the series is the pedagogical approach to practical examples that are relevant to market risk analysis in practice.

All together, the Market Risk Analysis four volume set illustrates virtually every concept or formula with a practical, numerical example or a longer, empirical case study. Across all four volumes there are approximately 300 numerical and empirical examples, 400 graphs and figures and 30 case studies many of which are contained in interactive Excel spreadsheets available from the the accompanying CD-ROM . Empirical examples and case studies specific to this volume include:

Parametric linear value at risk (VaR)models: normal, Student tand normal mixture and their expected tail loss (ETL);
New formulae for VaR based on autocorrelated returns;
Historical simulation VaR models: how to scale historical VaR and volatility adjusted historical VaR;
Monte Carlo simulation VaR models based on multivariate normal and Student t distributions, and based on copulas;
Examples and case studies of numerous applications to interest rate sensitive, equity, commodity and international portfolios;
Decomposition of systematic VaR of large portfolios into standard alone and marginal VaR components;
Backtesting and the assessment of risk model risk;
Hypothetical factor push and historical stress tests, and stress testing based on VaR and ETL.

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