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Ramesh, K. V. N. M.
- A Computationally more Efficient Distance based VaR Methodology for Real Time Market Risk Measurement
Authors
1 Department of Electronics and Computer Engineering, KL University, Vaddeswaram - 522502, Andhra Pradesh, IN
2 Jawaharlal Nehru Technological University, Kakinada – 533003, Andhra Pradesh, IN
Source
Indian Journal of Science and Technology, Vol 8, No 36 (2015), Pagination:Abstract
Measurement of market risk requires lots of computational resources when the Value-at-Risk (VaR) is computed using the historical simulation approach as it involves full revaluation of the portfolio for the considered data points. Although approximations can be done using the delta-normal, delta-gamma and delta-gamma-theta approaches, historical simulation approach alone is straight forward method that uses past data to generate future values without assuming any distribution for the underlying returns. The requirement of intensive computational effort in case of historical simulation hinders it’s usage for applying to real time VaR calculation. In this work we propose a methodology that doesn’t forego the benefits of historical simulation approach but can be applied to calculate market risk VaR in real time. The VaR calculated using the proposed methodology converges as the range of the portfolio returns is increased. The proposed methodology is also superior to the historical simulation approach in terms of usage of the computational resources and applicability to real time without sacrificing accuracy obtained using historical simulation approach.
Keywords
Portfolio Assessment, Risk Assessment, Risk Assessment through Simulation, Share Market, Value-at-Risk.- A Computationally More Efficient Distance based VaR Methodology for Real Time Market Risk Measurement
Authors
1 Department of Electronics and Computer Engineering, KL University, Vaddeswaram, Guntur – 522502, Andhra Pradesh, IN
2 Jawaharlal Nehru Technological University, Kakinada - 533003, Andhra Pradesh, IN
Source
Indian Journal of Science and Technology, Vol 9, No 10 (2016), Pagination:Abstract
Background/Objectives: The main objective of this paper is to compute VaR (Value at risk) which requires minimal resources and the computing is done in real-time with utmost accuracy. Method/Statistical Analysis: The paper presents a methodology which helps in computing VaR in real time and with most accuracy. Very less computational resources are required from computing VaR. The VaR computing methodology proposed in this paper converges as the returns on the portfolio ranges increases. Findings: It has been presented in the paper that the number of valuations required for computing the VaR is dependent on the number of instruments added to the portfolio and is independent of the number of instruments already existing at the time computing VaR. The method proposed in this paper can be used for computing VaR in real time.Keywords
Market Risk, Portfolio Instruments, Risk Assessment, Real-Time Market Risk Measurement, VaR- A Data Driven Approach to Calculate Optimum Collateral Amount for Vulnerable Option
Authors
1 Department of Electronics and Computer Engineering, Computer Science and Engineering, KL University, Vaddeswaram, Guntur District - 522502, Andhra Pradesh, IN
2 Jawaharlal Nehru Technological University, Kakinada - 533503, Andhra Pradesh, IN
Source
Indian Journal of Science and Technology, Vol 9, No 17 (2016), Pagination:Abstract
Background/Objectives: The main objective of this paper is to present a method that determines optimum collateral amount at which the risk of the venerable option is same as the exchange traded risk. Methods/Statistical Analysis: Mathematical models have been presented in this paper that is related to binomial tree building, Venerable option pricing. An algorithm has also been presented to calculate minimum collateral amount. Experimental models demonstrate the Convergence of Collateral amount and Sensitivity of Vulnerable Option Price to Model Parameters, and Correctness of the optimum collateral amount. Findings: A methodology has been presented in this paper that can be used to compute maximum collateral amount that must be supported by the writer of the option at which the venerable option becomes as risky as the exchange traded risk. This methodology can also be sued when the option writers chooses a fixed collateral amount when the underlying price is greater than the fixed price. A navel binomial decision has been developed and presented considering no assumption of the underlying distribution. It has been found that the price of an option with credit risk converges to exchange traded option as the collateral amount reaches a certain optimal value. The option writer in this can case can use the excess collateral amount for some other purpose. It has also been found that rules that are related to plain vanilla option need not be followed for calculating venerable option.- Incorporating Implied Volatility in Pricing Options using Binomial Tree
Authors
1 KL University, Vaddeswaram, Guntur District - 522502, Andhra Pradesh, IN
2 JNTU Kakinada, Kakinada - 533003, Andhra Pradesh, IN
Source
Indian Journal of Science and Technology, Vol 9, No 17 (2016), Pagination:Abstract
Background/Objectives: The main objective of this paper is to present an n-step binomial model which can be used to price an option under any exotic conditions. Methods/Statistical Analysis: Mathematical models have been presented using which an n-step binomial model can be developed. The model can be used for estimating price of options under n of number exotic conditions that influence the option price. Findings: Pricing of exotic options like Asian, American etc., undertaken through Binomial Trees using only one-step considering maximum and minimum values that can be taken by the underling at the maturity leads to a rough approximation of the option price. The approximation is possible by assuming stock price movements to be in one or two binomial steps during the life of the option. A binomial tree extended to an N-step Model can be used to price various exotic options. A study of the convergence in European option price with respect to Number of steps (N) and variation in price of Asian and American options with respect to confidence factor (k) (proxy for implied volatility) using the maximum and minimum boundaries on the value of k gives the investors the ability to change the value of k so that they can have their own opinions concerning the risk-neutral probability distribution.Keywords
Binomial Tree, Implied Volatility, Pricing Options.- Pricing Options Considering Bankruptcy of Underlying Issuer
Authors
1 KL University, Vaddeswaram, Guntur District - 522502, Andhra Pradesh, IN
2 Jawaharlal Nehru Technological University, Kakinada - 533503, Andhra Pradesh, IN