HYVAR (Hybrid VAR): HVAR Mixed with MC-HVAR
8 Pages Posted: 12 Jul 2016 Last revised: 14 Feb 2017
Date Written: July 11, 2016
We construct “Hybrid Value at Risk” (HYVAR) that is an arbitrary mixture of Historical VAR and Monte Carlo VAR. The procedure is capable of retaining both the correlation matrix of the original time series and also jumps/‘fat tails’. For this reason HYVAR provides more realistic scenarios, and as many as desired. The main idea is to use a “mixing angle” to mix HVAR with Monte Carlo HVAR.
Keywords: Hybrid Value at Risk, Historical VAR, Monte Carlo VAR, arbitrary mixture, mixing angle, correlation, jumps, fat tails
JEL Classification: C63, F65, G01, G1
Suggested Citation: Suggested Citation