Impact of cash flow mapping on VaR calculation of bond portfolios

• Autor(a) principal: Nunes, Lúcia Gonçalves
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10071/26412
• topic: Cash flow mapping; Value-at-Risk; Bonds; Obrigações

The exact estimation of Value-at-Risk (VaR) is a constant challenge in risk management. Most authors focus their studies on topics such as volatility estimation models or VaR methods; however, the study of the impact of risk factor mapping on VaR estimation has not received much attention. Thus, this dissertation aims to determine the loss of precision on cash flow mapping on the calculation of the VaR of bond portfolios, comparing different cash flow mapping approaches with an alternative that does not involve cash flow mapping. For this, our study requires yield curve modeling parameters that will allow us to have data for any cash flow maturity. The results highlight the importance of choosing a suitable cash flow mapping, namely, when the cash flows’ maturities are in the short term, to avoid vast errors in all the methods.