I think my question is off topic - but maybe not. I don't think it's on-topic for any of the alternative sites suggested in your faq. If it is off topic, can you suggest where else I might go for an answer?

I'm neither a working nor a student quant. I have, however, taken a few graduate level courses in quantitative finance. And I professionally implement and integrate quantitative models with trading and related applications, typically dealing with swaps and other complex derivative products.

I'm currently working on an application that, among other things, computes a one-day parametric VaR for security positions. I understand that the parametric method of computing VaR is a poor fit for non-linear instruments, such as options and fixed income. Thus my question:

How can I evaluate how poor a fit a parametric VaR result would be for a given holding?

I'm interested in both rules of thumb - for example, "credit default swaps are always a poor fit for a parametric VaR computation" and guidelines, such as "fixed income securities become increasingly non-linear as duration increases, and are a poor fit for a parametric VaR computation once duration is above X" [I have no idea if either of those statements are true. I made them up.]


That question seems fine. Post away!

Also, your professional description makes it sound like you actually do work in the industry.

  • $\begingroup$ I do work in the industry, just not as a quant. While I work on trading systems for complex financial instruments, and implement or integrate pricing models and risk analytics, the only math I do is as per given formula. $\endgroup$ – marfarma Feb 22 '13 at 18:01
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    $\begingroup$ Answered my own question: quant.stackexchange.com/q/7350/3365 In case you were interested $\endgroup$ – marfarma Mar 4 '13 at 18:37

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