Risk Analysis for Asset Managers: Historical Simulation, the Bootstrap Approach and Value at Risk Calculation

Abstract:     
From the risk management's perspective, one of the main differences between asset management companies and banks concerns the investment horizon: typically, asset managers have longer investment horizons. We compare different ways to deal with medium/long horizons, when the aim is to calculate absolute or relative VaR using a historical simulation approach and its variations, like bootstrapping procedures. We use several indices to test the accuracy of the different methods analysed. We find these methodologies:

- can provide satisfactory assessments of tactical risk;

- can inform portfolio managers of changes in market risk;

- are also promising for strategic risk analysis.

Keywords: Asset management, risk,historical simulation, bootstrapping, value at risk, relative value at risk

JEL Classifications: C15

Working Paper Series