The most widely used tool to measure, gear and control market risk is value-at-risk (VaR).VaR quantifies the worst loss over a specified target horizon with a given statisticalconfidence level. In other words, it represents a quantile of an estimated profit-lossdistribution. Various...

We investigate different methods for computing value-at-risk for nonlinear portfolios by applying them to portfolio compositions containing various option structures. Surprisingly, even for optioned portfolios, the results from relatively crude approximations such as the delta-normal method do...