Market Risk VaR: Historical simulation - The methodology
3 important questions on Market Risk VaR: Historical simulation - The methodology
What is the stressed VaR and ES?
The stressed VaR and ES are two measurements invented by regulators. Financial institutions have to select 251 days most stressful for their current portfolio. From that selection the VaR and ES are calculated
Does historical simulation assumes normality?
No, historical simulation does not assume normality! That is the great advanatge of the method.
What do we assume with the historical method?
That the distribution of tomorrows change is equal to the empirical distribution of the past.
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