Six years in writing, Value-at-Risk: Theory and Practice is the first advanced book on value-at-risk (VaR). It takes readers from the basics of value-at-risk to the most sophisticated techniques, many of which have never been published in book form. Its focus is on how to make value-at-risk work in practice—how to design, implement and use scalable production value-at-risk measures on real trading floors.

Practical, detailed examples are drawn from markets around the world, such as: Euro deposits, Pacific Basin equities, physical coffees, and North American natural gas. Sophisticated techniques are fully disclosed, including:

• quadratic ("delta-gamma") methods for nonlinear portfolios,

• variance reduction (control variates and stratified sampling) for Monte Carlo VaR measures,

• principal component remappings,

• techniques to "fix" estimated covariance matrices that are not positive-definite, and

• the Cornish-Fisher expansion.

Real-world challenges relating to market data, portfolio mappings, multicollinearity, and intra-horizon events are addressed in detail. Exercises reinforce concepts and walk readers step-by-step through computations.

The book offers a lot of "firsts." It is the first non-elementary book on value-at-risk. It is the first to provide exercises. It is the first to fully disclose methodologies such as quadratic value-at-risk and variance reduction for value-at-risk. It is the first to approach value-at-risk from the bottom up. It is the first to document the history of value-at-risk dating back to capital requirements implemented by the New York Stock Exchange during the 1920s and the first published value-at-risk measure, which appeared in 1945.

There are plenty of books that offer an introductory treatment of value-at-risk. This one targets experienced practitioners, researchers, and graduate students.

Contents
The Author