Abstract
The VaR model estimates tomorrow’s PnL behavior by projecting plausible asset returns from these assets’ recent history. The next day, specific assets returns will materialize, as will a corresponding actual PnL. To compute it, we merely have to price our positions under two scenarios—the market scenario used for the VaR calculation and that of the following day.
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Note: we calculate this PnL one day after the corresponding VaR and should therefore use the portfolio of positions as of the tenth to align VaR and actual PnL. The next day’s VaR calculation might already operate on an evolved portfolio.
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Auer, M. (2018). Backtesting. In: Hands-On Value-at-Risk and Expected Shortfall. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-319-72320-4_15
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DOI: https://doi.org/10.1007/978-3-319-72320-4_15
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Publisher Name: Springer, Cham
Print ISBN: 978-3-319-72319-8
Online ISBN: 978-3-319-72320-4
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