A semi-analytical method for VaR and credit exposure analysis

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Abstract

In this paper, we discuss new analytical methods for computing Value-at-Risk (VaR) and a credit exposure profile. Using a Monte Carlo simulation approach as a benchmark, we find that the analytical methods are more accurate than RiskMetrics delta VaR, and are more efficient than Monte Carlo, for the case of fixed income securities. However the accuracy of the method deteriorates when applied to a portfolio of barrier options.

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