Value-at-Risk (VaR) has been widely promoted by
regulatory authorities as a way of monitoring and managing market risk and
as a basis for setting regulatory minimum capital standards. Within the
realm of the fixed income portfolios of financial sector players, market
related risk has become more relevant and important on account of their
trading activities and market positions. It would therefore be in the interest
of market participants to develop models that accurately measure the riskiness
of their portfolios and furnish estimates of capital charge that would provide
adequate cover.
In line with its endeavor to develop market infrastructure, NSE has
taken initiative in developing a VaR system for measuring the market
risk inherent in Government of India (GoI) securities. The NSE-VaR
system builds on the NSE database of daily yield curves - the NSE-ZCYC.
The NSE-VaR system provides measures of VaR using 5 alternative methods
- variance-covariance (normal) and historical simulation methods, together
with weighted normal, weighted historical simulation and the recently
developed extreme value method [a technical paper explaining these
methods is available here]
(extracted from the Introduction to the NSE VaR system)
Debt on Net brings you a compilation of information on VaR relevant
to the fixed income markets in India including a non-technical essay
and FAQs, technical papers comparing various models and the NSE VaR
computation for Government Securities
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