Market Risk VaR: Historical SImulation Approach - Coherent Risk Measures
3 important questions on Market Risk VaR: Historical SImulation Approach - Coherent Risk Measures
What properties should a risk measure meet when trying to estimate the amount of capital a financial institution is required to keep
There are four requirements: Monotonicity, translation invariance, homogeneity, subaddivitiy
What is translation invariance?
Translation invariance is the principle of reducing the risk of a portfolio with K, when a cash injection of K is added to the portfolio
Does VaR always value diversification?
No, there are cases VaR does not value diversification. Sometimes the VaR does not meet the subadditivity constraint and would therefore value a diverse portfolio with a higher risk than a not diversived portfolio
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