Measuring and managing market, credit and Op risk [101]

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Bullet points include: Assume losses follow: Estimate volatility using weighted average of lagged squared, de-meaned returns Typically weights constructed with exponential decay, i.e. lambda ^ i for some constant lambda (with weights then scaled to sum to unity) See also www.nematrian.com/ExtremeEventsQuestionsAndAnswers2_3q.aspx  Issues include: how wide should data window be, what should the weights (decay factor) be, should mean returns be estimated or set to zero?

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