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How does an Expected Shortfall constraint work in portfolio optimization?
An Expected Shortfall constraint limits the average loss in the selected tail of the scenario loss distribution...
Are there standard horizons, percentiles, and lookback windows for VaR reports?
VaR horizons, confidence levels, and lookback windows are conventions tied to purpose rather than universal constants...
What is the intuition behind expectiles as a risk measure?
Expectiles act like asymmetric means, using heavier penalties on one side of the distribution to capture tail severity...
What does it mean when people say VaR is not subadditive?
VaR is not always subadditive, which means it can fail to reward diversification for certain lumpy loss distributions...
How do I choose the right time series for VaR on futures contracts?
Futures VaR depends on choosing a risk series that reflects roll behavior, liquidity, maturity, and seasonality...
How do volatility models fit into distribution-based VaR estimation?
Volatility models forecast conditional scale, while the return distribution controls the standardized shock and tail shape...
Is overlapping data a problem in VaR backtesting?
Overlapping calibration windows are normal, but overlapping realized loss horizons can distort VaR backtest inference...
How does VaR mapping work for an FX forward?
FX forward VaR mapping decomposes the trade into spot FX and domestic and foreign rate risk factors...
How does a copula help calculate portfolio VaR?
A copula models dependence between risk drivers, then portfolio VaR is read from the aggregated loss distribution...
Why can parametric VaR and Monte Carlo VaR disagree under a lognormal assumption?
Parametric and Monte Carlo VaR can differ when loss definitions, compounding, drift, or finite simulation error do not match...
What should a VaR framework actually do if a pricing library already exists?
A pricing library values instruments, while a VaR framework manages scenarios, mapping, aggregation, reporting, and controls...
Should a portfolio construction process use VaR, CVaR, or variance as its risk measure?
VaR, CVaR, and variance answer different risk questions, so the right choice depends on portfolio shape and investor preferences...
Why is VaR or CVaR on high-frequency returns tricky?
High-frequency VaR can be distorted by microstructure noise, tick effects, liquidity, and dependence between observations...
Why do cross-gammas make delta-gamma VaR more complicated?
Cross-gammas capture second-order interaction between risk factors, which can matter in nonlinear multi-factor books...
Why is Expected Shortfall harder to estimate by simulation than VaR in heavy-tailed portfolios?
Expected Shortfall is simulation-sensitive because it averages extreme losses rather than only locating a quantile cutoff...
What does the Kupiec proportion-of-failures test check in VaR backtesting?
The Kupiec test checks whether the total VaR exception count matches the expected breach rate for the confidence level...
What makes CDS spread scenarios harder than ordinary equity return scenarios?
CDS spread scenarios are hard because credit data can be sparse, sticky, and heavily affected by changing issuer fundamentals...
Why are overlapping returns tricky when estimating multi-day VaR?
Overlapping returns give more multi-day observations, but those observations are dependent and can overstate precision...
How should I think about VaR for a portfolio that includes options?
Option portfolio VaR often needs greek approximations or full revaluation because delta-neutral does not mean risk-free...
Should VaR for a portfolio of funds use look-through holdings or fund-level returns?
Fund-level VaR captures realized fund behavior, while look-through VaR captures current underlying exposure when data is reliable...
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