RiskMetrics—Technical Document

Part I Risk Measurement Framework

Chapter 1. Introduction

1.1 An introduction to Value-at-Risk and RiskMetrics 

1.2 A more advanced approach to Value-at-Risk using RiskMetrics

1.3 What RiskMetrics provides 

Chapter 2. Historical perspective of VaR 

2.1 From ALM to VaR 

2.2 VaR in the framework of modern financial management 

2.3 Alternative approaches to risk estimation 

Chapter 3. Applying the risk measures

3.1 Market risk limits 

3.2 Calibrating valuation and risk models 

3.3 Performance evaluation 

3.4 Regulatory reporting, capital requirement 

Part II Statistics of Financial Market Returns

Chapter 4. Statistical and probability foundations

4.1 Definition of financial price changes and returns 

4.2 Modeling financial prices and returns 

4.3 Investigating the random-walk model 

4.4 Summary of our findings 

4.5 A review of historical observations of return distributions

4.6 RiskMetrics model of financial returns: A modified random walk

4.7 Summary 

Chapter 5. Estimation and forecast 

5.1 Forecasts from implied versus historical information 

5.2 RiskMetrics forecasting methodology

5.3 Estimating the parameters of the RiskMetrics model 

5.4 Summary and concluding remarks

Part III Risk Modeling of Financial Instruments

Chapter 6. Market risk methodology 

6.1 Step 1—Identifying exposures and cash flows

6.2 Step 2—Mapping cash flows onto RiskMetrics vertices

6.3 Step 3—Computing Value-at-Risk

6.4 Examples

Chapter 7. Monte Carlo

7.1 Scenario generation

7.2 Portfolio valuation

7.3 Summary 

7.4 Comments

Part IV RiskMetrics Data Sets

Chapter 8. Data and related statistical issues

8.1 Constructing RiskMetrics rates and prices

8.2 Filling in missing data

8.3 The properties of correlation (covariance) matrices and VaR

8.4 Rebasing RiskMetrics volatilities and correlations

8.5 Nonsynchronous data collection

Chapter 9. Time series sources

9.1 Foreign exchange

9.2 Money market rates

9.3 Government bond zero rates 

9.4 Swap rates 

9.5 Equity indices 

9.6 Commodities

Chapter 10. RiskMetrics volatility and correlation files

10.1 Availability

10.2 File names

10.3 Data series naming standards

10.4 Format of volatility files

10.5 Format of correlation files

10.6 Data series order

10.7 Underlying price/rate availability

Part V Backtesting

Chapter 11. Performance assessment

11.1 Sample portfolio 

11.2 Assessing the RiskMetrics model

11.3 Summary 

Appendices