VaR calculations often require the valuation of complex payoffs over a large set of scenarios. Since pricing complex derivatives is computationally expensive, there is a direct tradeoff between accuracy and computational cost (e.g. time). Hence, full valuation of these instruments over the set of all feasible scenarios is rarely viable. This article describes a method to approximate expensive pricing functions that allows for fast and accurate VaR calculations. The author discusses general applications of the model to the risk management of portfolios comprised of complex instruments.
Mina, J. (2001), "Calculating VaR Through Quadratic Approximations: Improving the Computational Efficiency of Complex Portfolio Risks", Journal of Risk Finance, Vol. 2 No. 2, pp. 49-55. https://doi.org/10.1108/eb043461Download as .RIS
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