Creating and validating risk models [11]

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Bullet points include: (Financial) firms vary in how much they wish to measure mark-to-market risk versus measuring and managing hold-to-maturity risk Former in effect simulate to VaR horizon, value using market prices Latter simulate to (usually) maturity or use a ‘fair’ value Here ‘fair’ means excluding risk premiums and liquidity premiums even though ‘fair’ has a range of meanings that include, in some cases, ‘market value’, see e.g. Kemp (2009) Basel II originally parameterised with VaRs calculated including market spreads Solvency II: debate about matching adjustment and volatility adjustment

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