# [R-SIG-Finance] [R-sig-finance] Conponent VaR forsomeoption portfolio

Sat Jan 31 00:21:59 CET 2009

Typically VaR for option portfolios is computed by using a Taylor expansion to write the option value as the sum of  various greeks. In this approach one can then precompute the greeks at various spot, vol, rate and tenors.(Underlying factorsy) Once this is done  one could simulate the factors and use a table lookup to compute VaR. This is typically how it is done in large financial institutions.

One could use a simillar approach for CVaR perhaps.

Best
Krishna

----
"When I get a little money, I buy books and if any
is left, I buy food and clothes."  -- Erasmus

-----Original Message-----

Date: Thu, 29 Jan 2009 11:45:49
To: Guy Yollin<guy.yollin at rotellacapital.com>; megh<megh700004 at yahoo.com>; <r-sig-finance at stat.math.ethz.ch>
Subject: Re: [R-SIG-Finance] [R-sig-finance] Conponent VaR for
someoption	portfolio

There's also
http://www.fea.com/resources/pdf/a_endsearchvar.pdf
Ending the Search for Component VaR
by
Mark B. Garman
Financial Engineering Associates, Inc.

Remember that for options, the normality assumption is wrong
and you have to use skew and kurtosis or simulations.

-- David

-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of Guy Yollin
Sent: Thursday, January 29, 2009 10:56 AM
To: megh; r-sig-finance at stat.math.ethz.ch
Subject: Re: [R-SIG-Finance] [R-sig-finance] Conponent VaR for
someoption portfolio

I've used this paper as a guide to implementing cvar decomposition in
R/S-PLUS:

Yamai, Yasuhiro & Yoshiba, Toshinao, 2002.
"Comparative Analyses of Expected Shortfall and Value-at-Risk: Their
Estimation Error, Decomposition, and Optimization,"
Monetary and Economic Studies, Institute for Monetary and Economic
Studies, Bank of Japan, vol. 20(1), pages 87-121, January.

It's available here:

http://www.imes.boj.or.jp/english/publication/mes/2002/me20-1-4.pdf

Best,

-- Guy

-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch] On Behalf Of megh
Sent: Wednesday, January 28, 2009 9:21 PM
To: r-sig-finance at stat.math.ethz.ch
Subject: [R-SIG-Finance] [R-sig-finance] Conponent VaR for some option
portfolio

Can people here please guide me how to calculate Componrnt VaR
(sensitivity)
of an option position, for a portfolio which consists of number of
stocks
and option contracts (put ot call or both). Any document, research paper
over net is highly appreciated.

Thanks
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