Abstract

Managing Risk Using VaR and ALM

R. Acharki, J. Janssen & K. Taous

Centre d’Analyse des Données et Processus Stochastiques
Université Libre de Bruxelles

In order to study the sensitivity of a financial institution portfolio with respect to interest rate, a method of analysis is presented in this paper. This method is based on simultaneous use of Value at Risk and stochastic duration concepts.

As a coherent measure of the anticipated interest rate variation, we propose the Value at Risk of the spot rate computed on a fixed time horizon t.

For the value at risk of a security F two estimation methods are proposed. Further we prove that such a value is a linear function of the value at risk for the spot rate.

We begin to estimate the Value at Risk and the duration with the interest rate term structure of Vasicek model (1977).

Some examples are given.