Executing Historical Simulation 

  1. Choose Financial accounting ® Treasury ® Market risk ® Information system ® Value at risk ® Hist. simulation - delta.

    2. The selection screen for report RFTVVAR4 appears.

  2. Enter the selection criteria for the financial transactions. You can use the single transaction level.
  3. Enter the selection criteria for the financial transactions in the data group Cash Management.
  4. Enter the Value from date in the data group Value at risk calculation.
  5. Choose a Display currency.
  6. Choose an Evaluation type.
  7. Enter the Historical period or the Start of history.

    8. The system determines market price changes as base values for the historical simulation and the variance/covariance approach on the basis of the market data for the day in the historical period which is furthest back in the past upto the Start of history.

  8. Choose a Holding period.
  9. To choose the exact days on which the market data should be read, choose a calendar.
  10. Enter in the field Miss level the maximum number of values which can be missing before the calculation is stopped.

If there is no market data for historical dates (no quotation, no delivery via datafeed) the system has a replacement strategy. This involves using market rates from further in the past. Since this leads to a distorted statistical picture, you can use the error tolerance to determine the maximum number of such replacements allowed in an historical time sequence.
  1. Choose a Confidence level. This confidence level expresses (within the probability distribution of the VaR) what level of risk you are prepared to take.
  2. In order to choose a calculation method for the historical simulation, you have to choose an entry in the field VaR sample definition.
  3. Choose a Risk hierarchy.

To display risk in the framework of Value at Risk evaluations, it is important that the risk hierarchy and the evaluation type match. The evaluation type determines the yield curve types which are used to value financial instruments. The risk hierarchy determines for which yield curve types historical time sequences are formed. A risk can therefore only be output if the yield curve type of the evaluation type is the same as the yield curve type of the risk hierarchy.
  1. If you want to run a full valuation instead of a delta valuation, mark the Full valuation indicator.
  2. Choose the Sorting order and the Summarization level in the data group Output control.
  3. Choose execute.

Result

You will get the VaR of the selected transactions based on a historical simulation.