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Hybrid historical simulation approach to value at risk (VaR)

Yesterday I illustrated the simple historical approach to estimating value at risk (VaR). Today, using the same 100-day sample of Google's recent daily (periodic) stock returns, I illustrate the hybrid approach. The key idea is: Under the simple, each daily return gets the same weight (1%); Under the hybrid, more recent returns get greater weight (in this example, with lambda of 97%, following RiskMetrics, the most recent weight is 1-97% or fully 3%).
Length: 08:13

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