Hedging with value-at-risk1
نویسندگان
چکیده
Methods to computing value-at-risk gradients with respect to portfolio positions have many applications. They include calculation of capital/reward efficient frontiers, hedging of derivative portfolios and optimal replication. We present a new algorithm for computing value-at-risk and its gradients. If the return can be decomposed as a sum of independent portfolio marginals, the pay-off distribution can be computed with multiple convolutions. This principal-component-type decomposition is also useful for calibrating fat-tailed distributions. We conclude with two applications of hedging with value-at-risk.
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