Phorgy Phynance

Archive for August 2009

Daily S&P 500 Value-at-Risk Estimates

with 3 comments

A few people have commented about the methodology used to produce the charts in my last post. Keep in mind, I threw those together quickly for Felix based on charts already put together for a seminar at UCLA. If you want to see what I actually look at on a regular basis, I put the following chart together:

SP500VaR_10yr_linear_annotated

This is the 99%, 1-day VaR using a weighting scheme that places more weight on the most recent data.

Again, note the divergence between the two charts in recent months. Risk systems (like most third party vendors) based on normal distributions are likely indicating that risk continues to decrease. However, the stable distribution indicates the opposite, i.e. risk has begun increasing again.

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Written by Eric

August 8, 2009 at 9:49 am

80 Years of Daily S&P 500 Value-at-Risk Estimates

with 10 comments

For Felix:

S&P 500 Daily Value at Risk: Jab 1930 - May 2009

And the last 10 years…

SP500VaR_10yr

Update: Felix has updated his post with a link to my charts above, but makes some comments that I thought I should address.

If we use a shorter horizon that better captures what is going on at this moment, we see that risk plateaued in June and has actually ticked up significantly in the past several weeks as measured via the “stable” distribution. On the other hand, volatility has actually decreased during the past several weeks. What this means, i.e. the discrepancy between “stable” and “normal” is that the tails have become fatter recently.

SP500VaR_2009

Also keep in mind that although risk appears to have decreased since the beginning of the year, it is still at extremely high levels. We would have to go back to 1934 to see comparable risk levels, so it is no time to become complacent.

Written by Eric

August 6, 2009 at 6:32 am

Posted in VaR