Document Type thesis Author Name Liu, Guochun URN etd-0430104-155045 Title Value at Risk Models for a Nonlinear Hedged Portfolio Degree MS Department Mathematical Sciences Advisors Domokos Vermes, Advisor Bogdan Vernescu, Department Head Keywords Hedging Value at Risk Risk Measure Risk Management Date of Presentation/Defense 2004-04-30 Availability unrestricted
This thesis addresses some practical issues that are similar to what a risk manager would be facing. To protect portfolio against unexpected turbulent drop, risk managers might use options to hedge the portfolio. Since the price of an option is not a linear function of the price of the underlying security or index, consequently option hedged portfolio’s value is a not linear combination of the market prices of the underlying securities.
Three Value-at-Risk (VaR) models, traditional estimate based Monte Carlo model, GARCH based Monte Carlo model, and resampling model, are developed to estimate risk of non-linear portfolios. The results from the models by setting different levels of hedging strategies are useful to evaluate and compare these strategies, and therefore may assist risk managers in making practical decisions in risk management.
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