Template-type: ReDIF-Paper 1.0
Author-Name: Pilar Abad 
Author-Workplace-Name: Universidad de Vigo, Dpto. Economía Aplicada. Universidad de Barcelona, Dpto. Econometría, Estadística y Ec. Española
Author-Email: pabad@uvigo.es
Author-Name: Sonia Benito Muela
Author-Email: soniabm@ccee.ucm.es
Author-Workplace-Name: Universidad Complutense de Madrid, Dpto. de Economía Cuantica
Title: Using The Nelson and Siegel Model of The term Structure in Value at Risk Estimation
Abstract: Over the past decade, no other tool in financial risk management has been used as much as Value 
	at Risk (VaR). VaR is an estimate to determine how much a specific portfolio can lose within a given 
	time period at a given confidence level. Nowadays, in order to improve the performance of VaR 
	methodologies, researchers have suggested numerous modifications of traditional techniques. 
	Following this tendency, this paper explores the use of the model proposed by Nelson and Siegel 
	(with the aim to estimate the term structure of interest rate, TSIR) to implement a simulation to 
	calculate the VaR of a fixed income portfolio. In this approach the dimension of the problem is 
	reduced as the price of the portfolio depends on a vector of four parameters. Subsequently, we can use 
	Monte Carlo simulation techniques to generate future scenarios in these parameters and use them to 
	reevaluate the portfolio. The resulting changes in portfolio value are arranged and the appropriate 
	percentile is determined to provide the VaR estimate. Despite the fact that this approach theoretically 
	facilitates the calculation of VaR on fixed income portfolios, we show that the PROBLEM in practise 
	ignores price sensitivities. So this method cannot therefore be used to calculate VaR on fixed income 
	portfolios.
Keywords: Value at Risk, Financial risk. 
Length: 30 pages 
Creation-Date: 2005
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae0511.txt 
File-URL: https://eprints.ucm.es/id/eprint/7903/1/0511.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:0511