Hands-On Value-at-Risk and Ex­pec­ted Short­fall: A Prac­ti­cal Pri­mer

Martin Auer, Springer, 2018

This book describes a maximally simple market risk model that is still practical, and main risk measures like the value-at-risk and the expected shortfall. It outlines the model's underlying math, daily operation, and implementation, while stripping away much of the statistical overhead.

It is aimed at newcomers to the field, at model result consumers, and at market risk practitioners. It strives to give an intuitive insight into how market risk models operate under real-world constraints.

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Preface (PDF)
Acknowledgements (PDF)

1 Introduction
2 Motivation

3 Basic Terms and Notation
4 Historical Value-at-Risk
5 Sensitivities
6 Stress Tests
7 Analytical Value-at-Risk
8 Expected Shortfall
9 Model Choices
10 A Monte Carlo Modification
11 Support Measures

12 Properties of VaR
13 Properties of ES
14 VaR Noise
15 Backtesting
16 Distribution Tests
17 Nine to Five

18 Context
19 Scope and Workflow
20 Implementation

Conclusion (PDF)
A Statistics 101 (PDF)
B Pricing (PDF)
C Further Reading (PDF)
References (PDF)
Index (PDF)


"A very useful guide to the theoretical and practical aspects of implementing and operating a risk-monitoring system for a mid-size financial institution. It sets a common body of knowledge to facilitate communication between risk managers, computer and investment specialists by bridging their diverse backgrounds."
Giovanni Barone-Adesi
Professor, Università della Svizzera italiana

"This unassuming and insightful book starts from the basics and plainly brings the reader up to speed on both theory and implementation."
Shane Hegarty
Director Trade Floor Risk Management, Scotiabank

"Martin Auer's 'Hands On Value-at-Risk and Expected Shortfall' provides a nice easy-to-read, easy-to-use introduction to the VaR topic. The treatment is clear and not too demanding technically, and it provides helpful advice on VaR do's and don't's - something which is often missing in other books."
Kevin Dowd
Professor, Durham University; Author of "Measuring Market Risk"