HYVAR (Hybrid VAR): HVAR Mixed with MC-HVAR

8 Pages Posted: 12 Jul 2016 Last revised: 14 Feb 2017

Date Written: July 11, 2016

Abstract

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

Dash, Jan and Bondioli, Mario, HYVAR (Hybrid VAR): HVAR Mixed with MC-HVAR (July 11, 2016). Available at SSRN: https://ssrn.com/abstract=2808163 or http://dx.doi.org/10.2139/ssrn.2808163

Jan Dash (Contact Author)

Bloomberg LP ( email )

731 Lexington Ave
New York, NY 10022
United States

Mario Bondioli

Bloomberg L.P. ( email )

731 Lexington Avenue
New York, NY 10022
United States

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