Paul Wilmott on Quantitative Finance, Chapter 19, Value at Risk (VaR) | Forex
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In chapter 19 I learned how to calculate value at risk, or VaR, for an asset with normal returns. I also learned about the Sharpe ratio for comparing performance between strategies.
Comments
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good
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this is just standard statistics.
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I'm a bit confused what the argument is. My point about assuming no drift was just that as delta t gets smaller, the drift terms go to zero faster than the volatility terms in the calculations. If I'm trying to determine the chance I will lose $1 million today, a 10% return over a year doesn't really matter in my calculation much, it is just a 0.04% change per day. A typical volatility might be 2% a day, an effect 50 times bigger.
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Yes you are wrong, the fun thing about a gaussian process is that it is additative all the way. So, 5000000*0+1=1. Variances are also additative, standard deviations are not.
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Typically I think about drift in terms of years, e.g. my estimate of a particular stock might be up 20% over the next year. Volatility matters at all time scales. As you zoom in to small time scales the volatility overwhelms any drift. As you zoom out to longer time scales the drift starts to matter in the calculations (but there is still volatility). If you're hedging and looking at the daily risk, drift becomes almost insignificant.
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Thank u very much :) it's amazing
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@NathanWhitehead That's a great idea. What system do you use to get the blackboard effect? Also any more study notes? And have you checked out the posting by BionicTurtle, highly reccomended. Thanks
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@delightP Cool, glad they're helpful. It's also great to write up your notes and put them online, it helps keep you honest. I know putting up these videos did that for me!
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Hi, Thanks for these vids, using them as review for my study of the book. Thanks again.