A Gentle Introduction to the RM2006 Methodology
13 Pages Posted: 15 Jun 2009
Date Written: January 15, 2007
We present the basic concepts used in market risk evaluations, as well as the standard methodologies to compute quantitatively the risk. A new methodology is introduced with the goal to incorporate the state-of-the-art knowledge about financial time series. The performance evaluation of risk methodologies is explained, and the performance measures of the main risk methodologies are compared. The presentation stays at the conceptual level and uses the minimum number of formula needed for clarity.
Keywords: risk evaluation, RM2006, heteroskedasticity, fat-tail, long-memory ARCH process
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