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Market Risk [6]

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Bullet points include: If focus is on (instantaneous) volatility. Implicitly assumes markets move akin to Brownian motion. Risk dependent on (instantaneous) mean and (instantaneous) variance of underlying factor processes. And on how processes for different instruments co-move (the covariance matrix). Succinctly expressible using matrix algebra. Some subtleties regarding how to identify factors when only finite sized data series are available, see e.g. Kemp (2009). Or if we are seeking to use and/or take advantage of market implied data, see also Kemp (2009). Or when handling potentially fat-tailed behaviour, see e.g. Kemp (2010)

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