Comparison of Historical and Parametric Value-at-Risk Methodologies
5 Pages Posted: 18 Nov 2009
Date Written: September 24, 2009
Should we apply historical or parametric Value-at-Risk (VaR) methodologies? In this note, we address some differences between the historical and parametric VaR methodologies. In the light of the recent crisis and turmoil on financial markets we look for advantages and disadvantages of the methodologies. This note is not targeted to give a broad analysis comparing all aspects of historical and parametric VaR methodologies, it intends to give only some thoughts instead that came into the minds when talking about different VaR methodologies.
Keywords: Value-at-Risk, historical VaR, parametric VaR, filtering procedures, normalization, Monte-Carlo simulations, asset price dynamics
JEL Classification: G12, G22, G24, C15, D81
Suggested Citation: Suggested Citation